TMI Blog2005 (6) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... g question was referred to the Special Bench: "Whether, on the facts and in the circumstances, the revenues earned by the appellant from supply of equipment and software to Indian Telecom Operators were taxable inIndia?" 2. It may be relevant to mention that the revenue had earlier opposed the constitution of a Special Bench. The Revenue further opposed joining of Ericsson and Nokia as parties before the Special Bench. However, subsequently the learned counsel appearing for the revenue Shri G.C. Sharma, Sr. Advocate agreed that a Special Bench may be constituted and the above mentioned two assessees may also join as parties. 3. Before the hearing started on 19th July, 2004, Mr. M.S. Syali, the learned counsel for Motorola, referred to the assessee's application dated "Nil" (received in the office of the Tribunal on 26-5-2004) and requested the Bench that he be permitted to argue on the validity of the notice issued under section 142(1) of the Act as entire appeals were to be heard by the Bench as per directions dated 19-1-2004. Shri G.C. Sharma, learned counsel appearing for the revenue, opposed the above request. It was argued by Shri Sharma that only a specified question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad Bench of the Tribunal in the case of Dr. Vijaykumar Datla v. Asstt. CIT [1996] 58 ITD 339 and of the Delhi Bench in the case of Sheraton International Inc. v. Dy. CIT [2003] 85 ITD 110. Shri Syali pointed out that the Hyderabad Bench while deciding the matter had taken all the relevant provisions of the law into consideration. The decision of the Delhi Bench of the Tribunal, on the other hand, was per incuriam as the decision of the Hon'ble Supreme Court and the relevant statutory provisions were not discussed. Shri Syali at the same time added that both the Benches agree that some period of limitation has to be read in the statutory provision and it is not possible to hold that the notice under section 142(1) could be issued at any time. Shri Syali referred to the decision in the case of K. Iswara Bhat v. CAIT [1993] 200 ITR 238 (Ker.) to contend that even in the absence of a time limit prescribed by law, any proceedings have to be initiated and completed within a reasonable time. Where no time limit is prescribed for the completion of the proceedings, the logic that the repository of the power shall initiate the proceedings within a reasonable time should apply and the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dr. Vijaykumar Datla, the Hyderabad Bench did consider section 139(2) and that too in extenso and he drew our attention to the relevant parts of the order. Secondly, he submitted that the judgment of the Hon'ble Supreme Court in the case of Narsee Nagsee Co. clearly notes that the provisions of the Business Profits Tax Act which were before them are in pari materia with the provisions of the Indian Income-tax Act, 1922. Thirdly, it was submitted that it was irrelevant that Dr. Vijaykumar Datla was an order by the Hyderabad Bench which was not the jurisdictional Bench insofar as the present case is concerned, because there is no judgment of any High Court taking a view contrary to the view taken by the Hyderabad Bench in Dr. Vijaykumar Datla's case. Lastly, Mr. Syali contended that the theory of concur rent jurisdiction was rejected by the Hon'ble Supreme Court in the case of Narsee Nagsee Co. and further he added that the rule is that jurisdiction has to be expressly conferred and no inference of concurrent jurisdiction can be drawn. 8. Mr. Syali then referred to the order of the Delhi Bench in the case of Sheraton International Inc. and submitted for our consideration th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the end of the assessment year, only notice under section 148 could be issued as by that time it becomes a case of escaped assessment. The decision in the case of Sheraton International Inc. overlooked the two limbs of section 142(1) namely: (a) calling for the return and (b) calling for the details. It was submitted that these were two different powers with different attributes governing different situations. It was submitted that in principle, a notice under the section has to be issued during the assessment year which position has been confirmed by the courts. Later on limb (a) was incorporated in section 139(2) which now stands substituted by the provisions of section 142(1) and hence the question arises as to why the earlier position cannot be implied into the new provisions. 9.1 On the basis of certain observations of the Calcutta High Court in Sultan Ali Gharami's case, Mr. Syali contended that on the expiry of the assessment year, which in the case of Motorola was on 31-3-1998, the assessee acquired a vested right not to be disturbed except by a procedure known to law and that procedure has been prescribed only by section 147 of the Act and, therefore, once the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the financial year1-4-1999to31-3-2000. 11. Mr. Dastur, the learned counsel for the assessee (Ericsson) prefaced his arguments regarding the validity of the notice under section 142(1) with what he called the basic postulate, which according to him was that we should avoid any interpretation which would result in the overlapping of the provisions of section 142(1) and section 148 over the same period of time. The reason according to him was that if this overlap is allowed, then the A.O. will be in a position to discriminate between different assessees and may even choose to issue notice, under section 148 instead of 142(1), since that would give him more time to complete the assessment. In this connection he referred to section 153(2) which provides for the limitation of two years from the end of the financial year in which the notice under section 148 was served, to complete the re-assessment. If such a discrimination is allowed the result in the present case would be that if the assessment is to be completed under section 143(3), it would have to be done so on or before 31-3-2000, whereas if the assessment would have to be done under section 148, it would have to be done on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, i.e., in this case notice can be issued only up to 31-3-1999 and not thereafter. The reason is based on the provisions of section 139(4). This section gives an assessee the right to file a voluntary return up to a period of one year from the end of the assessment year. In the present case, such a right is available to the assessee up to31-3-1999. As long as it is open to the assessee to file a voluntary return under section 139(4), it cannot be said that the assessee has not filed any return of income and, therefore, Explanation 2(a) to section 147 which enables a re-assessment to be made in a case where no return of income has been furnished by the assessee, cannot be invoked. In other words, a notice under section 148 cannot be issued on the footing that the assessee has failed to file the return, so long as the assessee still has time to file a voluntary return under section 139(4). In this situation, it cannot be said that as on31-3-1998, the assessee had failed to file the return of income. Therefore, the narrower view is that a notice under section 142(1) can be issued only up to31-3-1999. 15.1 The above situation, according to Mr. Dastur would also fit in with the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142(1) and it should not be permitted to control or limit the field of operation of section 142(1) or the power of the A.O. to issue a notice thereunder. 17. It was in the above background that Mr. Sharma proceeded to put forth his analysis of section 142(1). He emphasized that section 142(1) commences with the words "for the purpose of making an assessment", which, according to him can only be read as the determination of the total income. In the determination of the total income, it is open to the A.O., as a first step, to compel the assessee to file a return of income where it is not filed under section 139(1). He pointed out that the words "before the end of the relevant assessment year", which were there in section 139(2) were omitted w.e.f. 1-4-1989, on which day section 142(1) was introduced, and to read into section 142(1) the condition that the notice calling for return thereunder should be issued before the end of the relevant assessment year, would be to ignore the fact that words to that effect which were present in the omitted section 139(2), do not find a place in the newly introduced section 142(1). He filed detailed written submissions which were filed by him bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) w.e.f. 1.4.1989. It is in this background that we have to approach the question. (b) The ratio of the Hon'ble Supreme Court judgment in Narsee Nagsee Co.'s Case is that the A.O. cannot have a concurrent power to proceed u/s 11 of the Business Profits Tax Act and section 14 of the same Act. Therefore, the A.O. cannot have a concurrent power to act u/s 142(1) and section 148 of the 1961 Act. (c) The marginal note to section 142 is "Inquiry before assessment". This marginal note was appropriate before 1.4.1989 because section 142 before that date provided only for issue of notices by the A.O. calling upon the assessee to produce the account books and other relevant information in support of the return or on points on which the A.O. required clarification. This was the kind of inquiry contemplated by section 142 prior to 1.4.1989. The marginal note, therefore, was appropriate. However, when the section underwent a change w.e.f. 1.4.1989 whereby clause (i) was introduced giving the A.O. the power to call for a return of income and section 139(2) was omitted w.e.f. the same date, the marginal note was not suitably changed and it continued to be "Inquiry before assessment". In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and substance, the order is one passed only u/s 143(3), since otherwise the notice issued u/s 143(2) and the production of material and evidence makes no sense. The A.O. did not purport to act u/s 144 at all and the argument that he only quoted the wrong section is, therefore, not available to the revenue. On the question as to why the assessment cannot be deemed to have been made u/s 144, it was contended that firstly, there was no notice to make the best judgment assessment under the first proviso to section 144 and secondly, in order to apply the second proviso, there should have been a valid notice u/s 142(1), which in this case was not there. Therefore, since the procedure laid down in section 144 had not been followed, there was no question of treating the assessment as a best-judgment assessment. Mr. Dastur also relied on the judgment of the Calcutta High Court in the case of Sultan Ali Gharami to contend that there can be no waiver of a statutory condition and in the present case even on facts, the assessee did not waive the condition that a valid notice u/s 142(1) ought to have been issued. 22. In his reply Mr. Syali, learned counsel for Motorola submitted that the reme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as beyond the period of limitation. He pointed out that at any rate this point was not raised by the assessee before the A.O. but was raised only before the CIT (Appeals). The assessee, according to Mr. Sharma, led the Department to believe that the notice as well as the return were valid, participated in the proceedings, permitted the A.O. to make an assessment u/s 143 and thereby prevented the A.O. from making a best judgment assessment u/s 144 and by doing all this, an advantage was gained by the assessee. Once the assessment was completed, the assessee filed an appeal and it was only in this appeal that it took the point that the notice issued by the A.O. is beyond the period of limitation and, therefore, the assessment was null and void. This should not be permitted. He relied strongly on the authorities referred to by him in part-II of his written submissions dealing with the principle of estoppel/approbate - reprobate. He further pointed out that the provisions of the Business Profits Tax Act considered by the Hon'ble Supreme Court in Narsee Nagsee Co.'s case were materially different from the provisions which are now under consideration. In this connection he drew our att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1999 in this case should be considered as the period of limitation for issue of notice because section 139(4) gives the assessee a right to file a voluntary return before that date. Till that period expires, income cannot be said to have escaped assessment. 26. It was contended that the provisions of clause (i) of section 142(1) were different from the provisions of clauses (ii) and (iii) of section 142(1) insofar as the later two clauses were procedural in nature, the breach of which was curable, if no notice had been issued. However, so far as clause (i) was concerned, it was a substantial provision bestowing jurisdiction on the A.O. to call for the return from the assessee and the breach of this provision would render the assessment null and void, in substance, the contention was that there could be different limitation periods in the same section for issue of different notices. This is not strange or unknown and as an illustration Mr. Dastur pointed out the provisions of section 148 in this regard, where periods like 4 years and 6 years have been prescribed for issue of notice depending upon the circumstances. 27. As regards the application of the principle of estoppel, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1922 (Old Act) as also of the Income-tax Act, 1961 (New Act) to which our attention was drawn. We have also considered the case law cited before us. It is an admitted position that no time is prescribed under sec. 142(1)(i) to issue notice. However, both the Benches of the Tribunal, i.e., Hyderabad Bench in the case of Dr. Vijay Kumar Datla and Delhi Bench in the case of Sheraton International Inc. agreed that some reasonable time limit has to be read into the provision. Notice under the above provision calling for a return cannot be issued any time at the whims and fancies of the Assessing Officer. Even Delhi Bench held that some time limit has to be read and held that notice under the above provision could be issued till the date of the completion of the assessment. Therefore, the proposition that notice is to be issued within a reasonable time having regard to the scheme of the Act is not in dispute. However, there is a controversy as to what is the inbuilt scheme of the Act, which indicates that such notice can be issued within a particular time limit. As per the assessee, the notice is to be issued within the assessment year or within one year of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion extend company, the (30th day of the date for the delivery of the November) of the assessment year; return in the case of any person or class of persons. (b) where the assessee is a person, other than a company,- (i) in a case where the accounts of the Assessee are required under this Act pr any Other law to be audited (or where the report of an accountant is required to be furnished Under section 80HHC or section 80HHD), Or in the case of a cooperative society, The 31st day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omission or wrong statement of section 142, may furnish the return therein, He may furnish a return for any previous year at any time or a revised return, as the case before the expiry of one year from may be, at any time before the end of the relevant assessment the assessment is made. year Or before the completion of the assessment, whichever is earlier: Provided that where the return relates to a previous year relevant to the assessment Year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year. 139(5): If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish in writing and made a return (within the verified in the prescribed time allowed under subsection manner information in such (1) of section 139), to form and on such points or furnish a return of his matters (including, with the income or the income of any previous approval of the other person in respect of commissioner, a statement of which he is assessable under all assets and liabilities this Act, in the prescribed not included in the accounts) form and verified in the as the Income-tax Officer may prescribed manner and require for the purposes of setting forth such other this section: particulars as may be prescribed; or Provided that the Income-tax Officer shall not require (ii) to produce, or cause the production of any accounts to be produced such accounts relating to a period more than or documents as the (Assessing three years prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment in any year, and which comes to his notice or have been under-assessed, subsequently in the course or have been assessed at too of the proceedings under this low a rate, or have been section, or recomputed the loss the subject of excessive or the depreciation allowance relief under this Act or any other allowance, as the case the Income-tax Officer may, may be, for the assessment year in any case in which he has concerned (hereafter in this reason to believe that section and in sections 148 the assessee has concealed to 153 referred to as the the particulars of his income relevant assessment year): or deliberately furnished inaccurate particulars Provided that where an assessment thereof, at any time within under sub-sec tion (3) of section eight years, and in any 143 or this section has been made other case at any time for the relevant assessment year, within four years of the no action shall be taken under end of that year, serve this section after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has under stated the income or has claimed Excessive loss, deduction, allowance or Relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. It is evident from the above that the basic scheme relating to assessment of income is that under the Old Act, after 1939, the ITO was required to give a notice u/s 22(1) by publication calling for returns in the prescribed form from persons whose total income was assessable under the Act. In the new Act, as per sub-section (1) of section 139, a statutory obligation has been cast on the assessee to furnish a return of income. Under both the Acts, the A.O. (I.T.O.) is authorized to issue notice to any person if in his opinion such person is liable lo tax. Such powers were vested under section 22(2) of the old Act, corresponding to section 139(2) of the new Act. Section 139(2) was omitted with effect from 1.4.1989 and simultaneously the same power was incorporated in section 142(1)(i) of the Act. A detailed reference to the provision shall be made hereinafter. 31. In case no assessment was made or an under-assessment was made, the income was said to have "escaped assessment" and the ITO was authorized to take action as provided in section 34 of the old Act. A similar provision is retained in section 147/148 of the new Act. If a person having taxable income failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id on the taxable profits of a chargeable accounting period but assessment is in respect of the financial year in which the Act operates it is not an unreasonable inference that notice for the chargeable accounting period must issue in the financial year following that period Similarly in the financial year 1949-50 notice would have to be given in that year for the preceding chargeable accounting period. In this view of the matter the contention that there is no provision in section 11(1) of the Act as to the chargeable accounting period as there is for the previous year in section 22(2) of the Income-tax Act is not well-founded. That the notion of the previous year of the accounting period is as much applicable to the Act as to the Indian Income-tax Act is shown by reference to Computation of Profits Rules in the Schedule to the Act. There the computation is related to the accounting periods. The previous year is shown applicable by reference to the rules under the Act by which some of the rules of the Income-tax Act are made applicable to the Act; and some of the sections of that Act are made applicable by section 19 and by the rules under the Act. The modified section 50, as int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a general notice such as is now issued under section 22(1). Even in those days, the return asked for the particulars of the total income during the previous year. Thus, at the end of the assessment year it was not possible to issue a notice for a back period beyond the previous year. By the force of section 22(2) it could be said at the end of any assessment year that insofar as the income of the corresponding previous year was concerned, it had escaped assessment. The logical result of this was that if no notice calling for a return under section 22 was issued within the assessment year, then section 34 was the only means to get at the tax. See Rajendranath Mukerjee v. Commissioner of Income-tax (1934). The scheme of the Indian Income-tax Act is entirely different, and by fixing a time limit for the issuance of a notice under section 22(2) makes it clear that in section 34 of the Indian Income-tax Act the words "escaped assessment" ex facie covered all cases of escaped assessment whether within or without a prior assessment. The assessment there "escapes" when once the assessment year expires." 32.2 In the case of D.C. Choudhuri, the assessees had sold their tea estate inAssa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of income till the end of the financial year. Once the financial year is over and no return has been made in response to a notice under section 19(1) and no individual notice has been served under section 19(2) a case would arise of "escaped assessment for the financial year"." 32.3 On appeal after considering the relevant statutory provisions, their Lordships held that the provisions of sections 19 20 of the Assam Agricultural Income-tax Act were similar to sections 22 23 of the Income-tax Act, 1922. Particularly sub-sections (1), (2) (3) of section 19 of the Agricultural Income-tax Act were held to be identical with subsections (1), (2) (3) of section 22 of the old Act. Likewise, sub-sections (1), (2), (3) (4) of section 20 of the Assam Agricultural Income-tax Act were held to correspond with sections (1), (2) (3) of section 23 of the old Act. Section 30 of the Agricultural Income-tax Act was found to be corresponding to section 34 of the old Act. Their Lordships referred to the decision in Harakchand Makanji Co.'s case and observed as under at page 711 of 76 ITR: ".......... that once a public notice is given under sub-section (1) of section 22 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other account." (sic) 33.1 It can further be seen from the foregoing discussion that even when no time limit was prescribed under sec. 22(2) of the old Act, yet courts held, having regard to the scheme of assessment, that the notice was to be served before the end of the assessment year, otherwise income would escape assessment at the end of the assessment year. What was implicit in the old Act was made explicit in the new Act. The judicial interpretation was given statutory recognition and in section 139(2) of the new Act it was specifically provided that the notice was to be issued "before the end of the relevant assessment year". The provisions of section 139(2) of new Act, prior to its omission w.e.f. 1.4.1989. read as under:- "(2) In the case of any person who, in the Assessing Officer's opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Assessing Officer may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment, the AO was required to issue notice under section 148 of the Income-tax Act. However, the clause as inserted also authorized the AO to call for a return after the close of the assessment year. 33.5 The provision as inserted was found to be not workable and problematic. Accordingly the change in the said provision was made with effect from 1.4.1990 just one year 'after its insertion. In the changed provision, there is no time limit for issuing notice except that it has to be after the time provided in sub-section (1) of sec. 139 is over. The A.O. cannot issue notice and call for the return as he could do under sec. 139(2) or section 22(2) of the old Act even before the expiry of time under sub-section (1) of section 139. In other words, the starting point empowering the A.O. to issue notice calling for the return is specifically indicated. This is the difference. Otherwise, the amended section 142(i) is similar to the provisions of section 22(2) of the Old Act which have been considered in great details by theApex Courtin the case of Narsee Nagsee Co's case as also in the case of D.C. Choudhuri. One can therefore, safely hold that a notice calling for a return und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made, but- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 34.1 Explanation 2 to section 147 would not make any difference as the said Explanation starts with the words "the following shall also be deemed to be cases where income chargeable to tax has escaped assessment." The word "ALSO" in the above Explanation is relevant and signifies that cases of "deemed escaped assessment" as per Explanation 2 are in addition to the cases of escaped assessment as per the main provisions of the section. The said Explanation therefore, cannot control the meaning and scope of "income escaping assessment" otherwise manifested in the scheme of the Act. The Explanation has been added merely as an abundant precaution and to tide over controversies arising on account of judicial decisions whether non-furnishing of return and other illustrations could be treated as cases of "income escaping assessment". The Explanation, therefore, does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year. In the case of CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569 (SC) as per the Head Note, it was held as under:- "A return showing income below the taxable limit submitted voluntarily in answer to the general notice under section 22(1) of the Income-tax Act is a good return; it is a return such as the assessee considers represents his true income. A return in answer to a general notice under section 22(1) of the Income-tax Act can, under section 22(3), be filed at any time before assessment and for this there is no limit of time. Where in respect of any year a return has been voluntarily submitted before assessment, the ITO cannot choose to ignore the return and any notice of reassessment and consequent assessment under section 34 ignoring the return is invalid." Here reference can also be made to the Full Bench decision of the Karnataka High Court in the case of Kareemsons (P.) Ltd. v. CIT [1992] 198 ITR 543. It provides a good illustration to explain the scheme. Their Lordships made the following pertinent observations at page 547:- "The decision of the Supreme Court in the aforesaid Kulu Valley Transport's case (1970) 77 ITR 518, meets the argument of Mr. Chanderku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142(1)(i) has to be issued before the time prescribed under the above sub-section. Thus, more than one provision can operate simultaneously without in any manner affecting the machinery/scheme of the assessment. From the mere fact that the assessee can file a return as per the enabling provisions of sub-section (4) of section 139, it does not follow that no income can be said to have escaped assessment until the period prescribed under Section 139(4) is over. The filing of the return would halt action of the Assessing Officer as explained above. 36.1 From the above discussion one may carry the impression that the Revenue's contention that both the notices, i.e., under sections 142(1)(i) and 148, can be issued simultaneously; both the provisions can operate simultaneously and discretion is vested with the Assessing Officer to utilize any one of them. This is erroneous and cannot be accepted. Firstly, it is directly opposed to the decision of the Hon'ble Supreme Court in the case of Narsee Nagsee Co. We have noted that this contention was raised and was specifically rejected by the Supreme Court. Secondly, whereas no conditions are prescribed for issuing notice under section 142( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be logical to infer that income escapes assessment at the end of the assessment year and therefore, the period of limitation to issue notice under section 148 is to be taken from that point of time. Thus this section fully supports the contention that at the end of the assessment year income would escape assessment and notice under section 148 will have to be issued. If that is the case, there can be no question of calling for a return under clause (i) of sub-section (1) of section 142 after the end of the assessment year without issuing notice under section 148. The position in the case of escaped assessment is totally different and the same is required to be tackled under section 148 of the Income-tax Act. It is therefore clear that a notice after the end of assessment year cannot be issued under section 142(1)(i) of Income-tax Act. All the provisions are required to be read together and given a harmonious construction. This is well-settled law. 38. In the case of Sheraton International Inc.'s case the Delhi Bench of the Tribunal took a view different front one taken by the Hyderabad Bench in the case of Dr. Vijay Kumar Datla. The Bench held that the notice under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to produce accounts etc. and do every thing provided in clauses (ii) and (iii) of sub-section (1) up to the time of making the assessment. But it does not follow that the Assessing Officer, for making an assessment, can exercise any power at any time without satisfying the conditions attached to the exercise of the power. Issue of notice calling for a return, i.e., the power which was earlier exercised: under section 139(2) of I.T. Act for initiation of assessment proceedings, cannot be exercised after the end of the assessment year without recourse to section 147/148 of the Act. The question of making an assessment would arise only if some proceedings have been initiated and are pending. Only then the question of exercising the powers "for the purpose of making an assessment" would arise. The power for initiation of proceedings as per the scheme of the Act is very different from the power of making an assessment. Therefore, the contention that the power of making an assessment or reassessment can only be exercised after initiating the assessment or reassessment proceedings is well taken. It is further rightly contended that there is no good reason why the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INTEREST UNDER SECTIONS 234A AND 234B. 41. The second important issue relates to the levy of interest under sections 234A and 234B, which arises in all the three cases. In support of the levy Mr. G.C. Sharma, the learned counsel for the Revenue, strongly relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 to contend that the interest under these sections is mandatory and it has to be charged in the assessment and the CIT (Appeals) has no powers to cancel the same. He also referred to the later judgment of the Supreme Court in CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564 and submitted that in this judgment, the Supreme Court did not consider it fit to re-consider the earlier judgment in Anjum M.H. Ghaswala's case even in the light of the Explanation 1 to section 234B which was introduced after the earlier judgment. In short, the submission of Mr. Sharma was that the interest under these sections has to be compulsorily levied. 42. On behalf of Ericsson, Mr. Dastur submitted the following facts: The return in the case of Ericsson was due to be filed on or before31-10-1997. The notice under section 142(1) was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a vague direction, such as in the present case, to "charge interest" will put the office of the A.O. which prepares the ITNS-150 in a state of confusion as to the appropriate section under which the interest is to be charged and would leave the decision to the office which would be contrary to law. It was further pointed out by him that the judgment of the Patna High Court has been affirmed in a civil appeal by the Supreme Court which is reported in CIT v. Ranchi Club Ltd. [2001] 247 ITR 209' as is further clear from the judgment of the Full Bench of the Patna High Court in Smt. Tej Kumari v. CIT [2001] 247 ITR 210 where the-effect of the Supreme Court judgment has been explained. Mr. Dastur pointed out that this is not a case of dismissal of a S.L.P. but a case of civil appeal being dismissed on merits and on the basis of the judgment of the Supreme Court in V.M. Salgaocar Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383 the judgment of the Patna High Court got merged with the judgment of the Supreme Court. 43. Mr. Dastur distinguished the case of Kalyankumar Ray v. CIT [1991] 191 ITR 634 (SC) on the ground that it is applicable only to a case where there is a specific direction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the power of the Settlement Commission to waive the interest charged under those provisions. It was in that connection held by the Supreme Court that the interest under these provisions was mandatory and cannot be waived by the Settlement Commission. It was the jurisdiction/competence of the Settlement Commission which was in question before the Supreme Court and not the modality of charging interest. The effect of the judgment of the Supreme Court is that even the Settlement Commission is obliged to levy interest in its order of settlement, which also means that the specific section under which the interest is levied is to be mentioned and it should also be shown that the conditions precedent for levying such interest have been fulfilled. In this judgment the earlier judgment of the Supreme Court in the case of Ranchi Club Ltd. was not adverted to, which itself shows that the two judgments operate in different fields. In this connection, Mr. Dastur also pointed out on the basis of the judgment of the Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 and certain other decisions that a judgment should not be read out of context and a sentence or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that unless there is a specific mention of the section under which interest is charged, the levy of interest cannot be held to be valid. 47. Mr. Dastur also put forth his submissions on the merits of the levy of interest u/s 234B. This section is attracted where the advance tax is not paid by the assessee despite there being an obligation to pay the advance tax. The question, according to Mr. Dastur is whether there was an obligation upon the assessee to pay advance tax in the present case. He drew our attention to section 209 of the Act and the steps involved in computing the advance tax. According to clause (d) of sub-section (1) of section 209, the income-tax has to be computed on the current income of the assessee. From such tax, the tax "deductible" at source will have to be reduced. Particular attention was drawn to the fact that the tax need not be actually deducted at source and it is sufficient if the tax is deductible under the various provisions of the I.T. Act such as 195 etc. under which the payer of the income is liable to deduct tax. In the present case, according to the assessee the tax is deductible u/s 195 of the Act, though according to the payer of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that the mere direction to charge interest is not valid in the absence of the mention of the specific section under which it is charged, Mr. Sharma contended that it is implicit in such a direction that the levy will be only in accordance with the provisions of the Act and the relevant rules and, therefore, even such a direction constitutes a valid levy of interest. He pointed out in this connection that section 234B itself fixes the liability of the assessee to pay interest as well as the period on which interest is leviable. According to Mr. Sharma, the application of mind on the part of the A.O. is reflected by the assessment order itself and the view which the assessee may take regarding his liability to pay advance tax is not relevant at all. The assessee cannot assume that no advance tax is payable by him. The A.O. will charge interest on the basis of his own findings in the assessment order regarding the quantum of assessment. He submitted that the word "mandatory" means that it is automatic and no discretion is left with the A.O. not to levy interest. 50. Referring to the authorities, Mr. Sharma cited the judgment of the Punjab Haryana High Court in Vinod Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter to reproduce paragraphs 10.1 10.2 of the circular: Page 37 of 182 ITR (St.): "Payment of mandatory interest to replace various interests and penalties- 10.1 The old provisions in the Income-tax Act, which gave the assessing authorities discretionary powers to charge interest and also to levy penalties for the same default, were found to be rather complicated. These were contained in the following sections of the Act:- (i) Section 139(8) relating to levy of interest for late filing or non-filing of return of income. (ii) Section 215 relating to levy of interest for under-payment of advance tax. (iii) Section 216 relating to levy of interest for deferment of instalments of advance tax. (iv) Section 217 relating to levy of interest for non-payment of advance tax. (v) Section 271(1)(a) relating to levy of penalty for failure to file the return of income or to file it in time. (vi) Section 273 relating to levy of penalty for failure to file the statement/estimate or for filing an untrue statement/estimate of advance tax payable. (vii) Section 140A(3) relating to levy of penalty for failure to pay tax on self-assessment. 10.2 With a view to simplify the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance tax are concerned, Part F of Chapter XVII has been obligated with the duty of levy of interest, as also to make the necessary changes in the payment of interest dependent on the change that may occur consequent to the order of settlement u/s 245D(4)." At page 9, the position was summed up in the following words: "If the scheme of levy of interest is thus to be analyzed on the anvil of the provisions referred to hereinabove, it shows that the interest contemplated u/ss 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, the same indicates that so far as the payment of statutory interest is concerned, the same is outside the purview of the settlement contemplated in Chapter XIX-A of the Act." At page 13 of the, report, the Supreme Court contrasted the earlier and new provisions relating to the levy of interest in the following words: "Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression "shall" used in the said section cannot by any stretch of imagination be construed as "may". There are sufficient indications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Supreme Court, whereas the earlier judgment of the Supreme Court in Ranchi Club Ltd.'s case was rendered by a three judges Bench of the Supreme Court and also that the judgment in Anjum M.H. Ghaswala's case was rendered on 18-10-2001, which is later than, the judgment in Ranchi Club Ltd.'s case which was rendered on 1-11-2000, but would submit that the issue in Anjum M.H. Ghaswala's case is not the same as in Ranchi Club Ltd.'s case. He would further say that the judgment of the Supreme Court in Ranchi Club Ltd.'s case is a direct judgment on the question before us, which cannot be modified or under stood in the light of a judgment which only touches the issue before us indirectly. This contention, according to him would also equally apply vis-a-vis the earlier judgment of the three judges Bench of the Supreme Court in the case of Kalyankumar Ray. 56. It is, no doubt, true that in Anjum M.H. Ghaswala's case, the Supreme Court was concerned only with the question whether under section 245D(6), the Settlement Commission has the power to waive or reduce the interest payable under sections 234A to 234C. Superficially, therefore, it is possible to say that the question as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been mentioned. In the case of Kalyankumar Ray, the question was whether the assessment form No. ITNS 150 can be treated as part of the assessment order. The question arose before the Supreme Court this way. In that case, the assessment order (where the total income was computed) itself did not contain the calculations of the income-tax. These calculations were made in form No. ITNS 150. The contention advanced before the Supreme Court was that section 143(3) mandates that there should be an order in writing determining the sum payable by the assessee on the basis of the assessment and since the assessment order proper did not in itself contain the calculations or the determination of the tax payable by the assessee; the entire assessment order should be held to be void and annulled. The contention of the department, based on the punctuation in section 143(3) was that an order in writing was required only for the assessment of the income or loss and no such order in writing is required for determining the tax payable by the assessee which is an independent process. This argument; though found plausible, was rejected by the Supreme Court by saying that even the determination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as part of the assessment order, it follows that if the specific section under which interest is charged is mentioned in that form, it satisfies the requirement that the interest must be charged in the assessment order itself and should specify the section also. 58. The argument before us on behalf of the assessees however, was that the above judgment of the Supreme Court is not a direct decision on the question whether a specific order by the AO, mentioning the section under which the interest is charged, is required for the validity of the levy. It was pointed out that the question before the Supreme Court was not about the validity of the charge of interest, but whether the calculations of the tax have to be made in the assessment order itself and, therefore, the principle laid down in the judgment cannot be extended to coyer everything in the assessment form. In addition, it was also argued that the judgment was rendered in disposing of a Special Leave Petition under Article 136 of the Constitution of India and, therefore, though it gives elaborate reasons supporting the decision, nevertheless it cannot be equated to a judgment rendered while disposing of a Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of section 156 it is clear that notice of demand claiming interest can be issued only when there is order in the assessment order levying interest. Except in the cases of the assessee Tej Kumari Devi [C.W.J.C No. 2732 of 1995(r) and C.W.J.C. No. 2780 of 1995 @] there is no order in any of the assessment orders levying interest under any of the sections 234A, 234B or 234C. To use the expression "charge interest, if any" or "charge interest as per rules" cannot be read to mean that the Assessing Officer has passed orders "charge interest under all the aforesaid sections". The order to charge interest has to be specific and clear, as for that matter any order to charge any tax, penalty or fine. It is different thing as in the case of Tej Kmari Devi where there is an order levying interest but it left the calculation to the office. The assessee must be made to know that the Assessing Officer after applying his mind has ordered the charging of interest and under which of the sections of the Act. Interest is payable under various provisions like for default or delay in furnishing the return of income [sections 139(8) and 139(9)] and also under the various sections for default in payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be applied. We may first refer to the judgment of the Supreme Court in the case of Ranchi Club Ltd. No doubt, it has been rendered in a Civil Appeal. However, the earlier judgment of the Supreme Court in the case of Kalyankumar Ray, rendered by a Bench of equal strength, does not appear to have been brought to the notice of the Supreme Court Ranchi Club Ltd.'s case. The judgment in Kalyankumar Ray's case does not appear to have been brought to the notice of the Ranchi Bench of the Patna High Court also whose judgment was upheld in appeal by the Supreme Court. The ratio on the basis of which the judgment in Kalyankumar Ray's case, was rendered in our humble understanding is that Form No. ITNS 150, if it has been signed or initialled by the same AO, has to be read as part of the assessment order under section 143(3). In the present cases, the forms have been signed by the same AO, who signed the assessment order. Therefore, these forms also have to be read as part of the assessment orders in the present cases. We have already adverted to the fact that in these forms, the specific section under which the interest has been charged, as also the amounts of the interest charged under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of bona fide reasons, they shall be taken into account by the AO and he could refrain from charging interest if he is satisfied as to the bona fide of the reasons. The AO was found to have charged interest on the assumption that the interest was mandatory. This assumption was held by the High Court to be erroneous. Thus, the first judgment of the Calcutta High Court cited above proceeded on the basis that the levy of interest has to be in the assessment order itself, whereas the second judgment of the same High Court cited above laid down that a speaking order has to be passed for levying interest under section 216. In that case even the details of the calculations were not mentioned in the assessment order. In the case before the Gauhati High Court, it was held that the levy of interest under section 216 was discretionary and not mandatory. It is to be noted that both theCalcuttajudgments were rendered before the judgment in the case of Kalyankumar Ray. 63. The character of the levy of interest has been held by the Supreme Court to be mandatory in nature. Once, it is held to be mandatory in nature and the discretion of the AO having been expressly taken away under sections 234 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in establishing that there is no default, the levy of interest must be struck down. The rights of the assessee are certainly prejudiced if he is not told as to why he has to pay interest. That prejudice can be removed if the assessment order contains a mention of the specific section so that the assessee can know what precisely is the default allegedly committed by him according to the income-tax authorities and he can thereafter take steps to show that no such default has been committed. But to say that the levy must be struck down as invalid merely because the assessment order does not mention the section under which it is charged appears to us to go contrary to the ratio laid down by the Supreme Court in Anjum M.H. Ghaswala's case that the character of the interest under sections 234A to 234C is mandatory in nature. In the present cases, the assessees' complaint that the specific section under which the interest is charged has not been mentioned is without force, having regard to the fact that the specific section has been mentioned in Form No. ITNS 150 in all the three cases before us and having regard to the legal position laid down by the Supreme Court in Kalyankumar Ray's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the interest under sections 234A and 234B read with Explanation 4 is liable to be charged on the returned income, or assessed income. Another question which was referred for consideration by the Full Bench was whether in the absence of a specific order of the assessing authority, interest could be charged and recovered from the assessee. The final decision of the Full Bench is as under: "(i) The decision rendered by the Division Bench in Ranchi Club Ltd's case [1996] 217 ITR 72 (Patna) and having been affirmed by the Supreme Court in Civil Appeal No. 10360 of 1996, has correctly decided the issues which are the subject-matter of this reference. (ii) Interest under sections 234A and 234B is leviable on the tax on the total income as declared in the return and not on the income as assessed and determined by the assessing authority. (iii) In the absence of any specific order of the assessing authority interest could not be charged and recovered from the assessee." Here again, the character of the interest was not under consideration by the Full Bench. As we have already pointed out, it was only in the case of Anjum M.H. Ghaswala that for the first time, the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said order invalid. The law is well-settled that in cases where the exercise of statutory power is subject to the fulfilment of a condition then the recital about the said condition having been fulfilled in the order raises a presumption about the fulfilment of the said condition, and the burden is on the person who challenges the validity of the order to show that the said condition was not fulfilled. In a case, where the order does not contain a recital about the condition being fulfilled, the burden to prove that the condition was fulfilled would be on the authority passing the order if the validity of the order is challenged on the ground that the said condition is not fulfilled. Reference, in this context, may be made to the decision of this Court in Swadeshi Cotton Mills Co. Ltd. v. State of U.P. [1962] 1 SCR 422: (AIR 1961 SC 1381) where it has been observed: The validity of the order therefore does not depend upon the recital of the formation of the opinion in the order but upon the actual formation of the opinion and the making of the Order in consequence. It would therefore follow that if by inadvertence or otherwise the recital of the formation of the opinion is not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal as in the case of Ranchi Club Ltd. and, therefore, it is not a binding judgment under Article 141 of the Constitution of India is, with respect, not acceptable. In Daryao v. State of [UPAIR 1961 SC 1457 it was held that if the SLP is dismissed in limine without passing a speaking order then such dismissal cannot be treated as creating a bar of res judicata. It was further held that in the absence of a speaking order, it would not be easy to decide all the factors which weighed in the mind of the Court and that makes it difficult and unsafe to hold that such a summary, dismissal is a dismissal on merits. These observations themselves suggest that if an SLP is dismissed by giving reasons and by passing a speaking order then it would create a bar of res judicata. We may notice a few judgments in this regard. InUnionofIndiav. All India Services Pensioners' Association AIR 1988 SC 501, the Central Administrative Tribunal did not apply an order of the Supreme Court passed in an SLP on the ground that the order was not passed while dismissing an appeal. Disapproving the decision of the CAT, a Division Bench of the Supreme Court held as under: "With great respect to the Tribunal, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under article 136 of the Constitution is simply dismissed by saying "dismissed", and an appeal provided under article 133 is dismissed also with the words "the appeal is dismissed". In the former case it has been laid down by this court that when a special leave petition is dismissed this court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the court means is that it does not consider it to be a fit case for exercise of its jurisdiction under article 136 of the Constitution. That certainly could not be so when an appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of the article 133. This doctrine of merger does not apply in the case of dismissal of a special leave petition under article 136. When an appeal is dismissed the order of the High Court is merged with that of the Supreme Court. We quote the following paragraph from the judgment of this court in the case of the Supreme Court Employees' Welfare Association v. Union of India AIR 1990 SC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "A petition for leave to appeal to this court may be dismissed by a non-speaking order or by a speaking order. Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e., it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted in place of the order put in issue before it nor would it be a declaration of law by the Supreme Court under article 141 of the Constitution for there is no law which has been declared. If the order of dismissal be supported by reasons then also the doctrine of merger would not be attracted because the jurisdiction exercised was not an appellate jurisdiction but merely a discretionary jurisdiction refusing to grant leave to appeal. We have already dealt with this aspect earlier. Still the reasons stated by the court would attract applicability of article 141 of the Constitution if there is a law declared by the Supreme Court which obviously would be binding on all the courts and Tribunals inIndiaand certainly the parties thereto. The statement contained in the order other than on points of law would be binding on the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aration of the law under Article 141, on the other hand, we are unable to accept the contention on behalf of the assessees as correct. In other words, even in an order dismissing the SLP under Article 136 of the Constitution and thereby exercising its discretionary power, the Supreme Court in a given case could give reasons and such reasons if they contain a declaration of the law, would be binding on all the courts and Tribunals in India and, thereafter, no court or Tribunal will have the liberty of taking a contrary view. This precisely is the position with regard to the judgment of the Supreme Court in the case of Kalyankumar Ray. There, it has been held that - (a) section 143(3) does require that not only the total income, but also the amount payable thereon should be determined by an order in writing; (b) Form No. ITNS 150 is a form for determination of tax payable and when it is signed and initialled by the Assessing Officer, it is an order in writing by him determining the tax payable within the meaning of section 143(3); and (c) therefore, there is no reason why this form which has been approved by the Assessing Officer should not be treated as part of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in the assessment order. 69. With regard to the judgment of thePunjaband Haryana High Court in Vinod Khurana's case, it was submitted that the decision was based on the judgment of the Supreme Court in Kalyankumar Ray's case, without appreciating the true import and effect of the judgment of the Supreme Court. For the reasons already stated by us, we are unable to uphold the submission. 70. It was then argued that the "judgment-decree" theory propounded by the Patna High Court in Ranchi Club Ltd.'s case has not been considered by thePunjaband Haryana High Court in Vinod Khurana's case. This theory presupposes that the assessment order proper, i.e., the order in which the total income is computed, and Form No. ITNS 150 which is the "assessment form" in which the calculations of the tax and the interest and the net sum payable are shown, are separate and distinct, an assumption which is not valid in view of the law declared by the Supreme Court in Kalyankumar Ray's case to the effect that the "assessment form" (Form No. ITNS 150) is to be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of section 143(3). A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that there is no default. We have earlier referred to the judgment of the Supreme Court in Hari Ram Yadav's case where it was held that a suspension order cannot be quashed merely because the satisfaction of the Governor has not been recited in the suspension order, because the condition precedent is that the satisfaction should have been reached as a matter of fact and not that the satisfaction should have been recited in the order. Similarly, it is the occurrence of the default as a fact that gives rise to the liability to pay interest; if the reasons are not recited in the assessment order, it only affects the procedural aspect - the rules of natural justice - which can be cured by directing the parties to establish their rival positions. There may be quite a simple case, where the return of income was filed on the due date itself, say31-7-1997. The Assessing Officer mistakenly takes the date as30-11-1997and interest under section 234A is charged. This is of course invalid since in fact there was no default. But, that has to be established and on whom the burden lies is laid down in the judgment of the Supreme Court cited above. Sp also, where a return is filed on30-11-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in respect of the income (which is in dispute in the appeal) it is entitled not to pay the advance-tax because the tax is "deductible" by the payer, though not actually deducted by him. If tax is not so deducted, the department is entitled to treat the payer as in default under section 201(1). The department is also entitled to recover interest from him under section 201(1A). Therefore, the department cannot seek to recover the interest from the assessee and enjoy a double advantage. The interest is essentially compensatory in nature and no double advantage can be permitted. 72. In support of the above arguments, reliance was placed on the following orders of the Tribunal: 1. Sedco Forex International Drilling Inc.'s case. 2. Asia Satellite's case (Delhi). 3. Rheinbraun's case. 73. The above arguments were also adopted by the other two assessees. 74. The arguments show that the assessees are denying their liability to pay interest on the ground that they have not committed any default which would attract section 234B. According to them, they are not liable to pay the advance tax. This contention has not been raised before the AO obviously because the assessees have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) for the reasons already stated cannot be upheld. The CIT(A) has also examined the merits of the assessees' claim that they are not liable to pay the advance tax and in the absence of any liability there is no default and hence no interest is chargeable under section 234B. On this aspect, no strong grounds have been made out on behalf of the department to doubt the correctness of the view taken by theDelhiand Mumbai Benches of the Tribunal in the orders cited supra. The language of section 209(1)(d) of the Act supports the assessees' contention. All the payments made to the assessees are tax deductible at source (even assuming that they are taxable) as rightly held by the CIT(A) and also contended before us. In that case, having regard; to the provisions of sections 201(1) and 201(1A) to which our attention was drawn on behalf of the assessees, the assessees cannot be held to have committed default in paying the advance tax. They are entitled to take into account the tax which is deductible by the payer, though not actually deducted. Consequently, there is no liability to pay interest. The decision of the CIT(A) to cancel the interest under section 234B is upheld on merits. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an observation or a direction for charging interest in the assessment order.Para17 of the Tribunal's order shows that even in the notice of demand, there was no mention of any interest figure. The Tribunal has noted in this paragraph that nothing was brought to their notice about any calculation sheet having been provided to the assessee since no copy thereof was filed by the assessee, nor was the assessment record produced before them for verification despite a specific direction to that effect. Para 19 of the order of the Tribunal shows that the judgment of the Supreme Court in Kalyankumar Ray's case was held inapplicable because the assessment order and the demand notice did not contain a word about the levy of interest. In the present cases, the assessment order shows "charge interest" in the cases of Ericsson and Motorola and "charge interest as per law" in the case of Nokia, though the specific section under which the interest is charged is not mentioned in the body of the assessment orders in all the three cases. Further, the specific section under which interest is charged is mentioned in the Form No. ITNS-150 in all the three cases. Thus, there is a factual difference betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 234C cannot be held to be invalid merely on account of there being no specific direction in the assessment order or on the ground that the section under which the interest is levied is not specified in the body of the assessment order, provided that the assessment form in ITNS-150 contains a specific reference to the section under which the interest is charged, the calculations are shown under the relevant columns and the said form is signed as initialed by the same AO who signed the assessment order and is also dated. 80. We now proceed to dispose of the cross-appeals assessee-wise. ERICSSON (Arguments) Whether any income accrues inIndia. 81. The basic contention of Mr. G.C. Sharma, the learned counsel for the revenue was that the entire income accrued in India under section 5(2) and section 9(1)(i) of the I.T. Act. While admitting that the onus is on the revenue to show that the income accrued inIndia, he contended that once this burden is discharged, the onus shifts to the assessee to show that no income accrued inIndia. In this background, the first contention of Mr. Sharma was that the supply contract, the installation contract and the business promotion agreement h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operators in India and the assessee constituted a business connection since what links them with each other is the purchase of the GSM Cellular system. In this regard he pointed out that the Indian company which is a party to the business promotion agreement is a hundred per cent subsidiary of the assessee company and, therefore, there is a direct business connection and, therefore, the income directly arose to the assessee inIndia. According to him, whatever is the tax implication of the connection, it was certainly a business connection. According to Mr. Sharma, the connection can arise out of a series of transactions between the generator of the income and the recipient thereof. If the activity which produces the income is located inIndia, the source of the income is also inIndia, and thus the income accrues or arises also inIndia. Mr. Sharma at this juncture pointed out that in the case of Motorola and Nokia, the assessee did not raise the contention that there is no business connection and, therefore, the income did not accrue or arise inIndia. He also relied on the findings of the CIT(A) at page 39 of his order. In connection with the accrual of income inIndia, Mr. Sharma str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that carrying on of business was not a single act but a series of activities and this very concept was also reflected in Article 7 of the DTAA. He then referred to Article 5.2 of the DTAA and pointed out that it was an inclusive definition and the exclusions were provided in Article 5.3 and it is for the assessee to show that it falls within the exclusionary article. He referred to clause (k) of Article 5.2 which included a "site" in the definition of PE and submitted that the site where the work was carried out by the assessee becomes a PE inIndia. Likewise he referred to clause (e) of Article 5.3 which refers to a marketing office as a PE and in this connection he referred to the Market Support Agreement to show that the assessee did fall within clause (e) of Article 5.3 and had a marketing office inIndia. It was not possible to accept that even without a marketing office they carried on business inIndiaon such scale. He extensively referred to the written submissions filed by him in this connection, especially page 3 thereof, where the judgment of the Italian Supreme Court in a similar matter has been referred to. His submission was that the facts before the Italian Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor for nine months. This company is also stated to be a subsidiary of LME. In a nutshell, for the first three months, the assessee had a marketing agreement with EFC and for the remaining nine months it had an agreement with ECI. The installation contract was between ECI and the cellular operators. It was also pointed out that EFC and ECI both were assessed to tax inIndiafor the income earned by them respectively from the marketing and installation contracts. Thus on this ground it was contended by Mr. Dastur that the first-ground taken by the revenue was misconceived. However, he submitted that even assuming that the ground actually referred to supply agreement, then also he was ready to argue that there can be no PE inIndia. 85.1 Referring to ground No.1 (ii) he raised a preliminary objection that it refers only to a fixed place of business, though Mr. Sharma had argued the case on all the four aspects which he could not have argued within the scope of the ground raised. In this connection he submitted that mere user of the place does not give rise to PE and if the assessee's employees went to EFC's office that per se does not become a PE. According to him a place shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such an inference as the agreement itself was very specific as to when the title and risk were to pass. It was pointed out by him that the Project Manager referred to in the supply contract was situated outsideIndiaand the Project Manager referred to in the installation contract was to be at the site inIndia. Referring to clause 18 of the contract it was submitted by Mr. Dastur that the acceptance test did not determine the passing of the property in view of clause 13 of the contract. Mr. Dastur referred to the other clauses of the supply contract such as those dealing with financing of the software (clause 20), warranties (clause 21), additional orders (clause 26), termination of the contract (clause 31), notices to be issued (clause 36), export etc. (clause 40.3), to contend that the supply contract is complete and self-functioning contract of sale and though there is an overall agreement which co-ordinates the supply and installation contracts, that was only a sort of a memorandum of understanding and the ultimate and enforceable effective contract was only the supply contract. 85.3 Mr. Dastur next took us through the installation contract which is at page 42 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most probably been entered into even if the installation of the equipment was to be done by an Indian company. In response to a query from the Bench as to whether JTM had a right, under the overall agreement to terminate the installation contract, Mr. Dastur answered in the affirmative and drew our attention to clause 25.1.1 and clause 25.1.2 of the installation contract. This clause provided for termination of the two contracts namely the supply contract and the installation contract separately which was a pointer to his earlier contention that these agreements were not one but they were quite independent. His submission was that the overall agreement does in no way affect the assessee's liability to tax. He drew our attention also to instruction No. 1829 dated21-9-1989issued by the Central Board of Direct Taxes which recognizes the practice of the parties in such contracts to enter into an overall agreement for better co-ordination. 85.6 On the basis of the above facts, Mr. Dastur formulated two basic propositions which according to him are fundamental to the resolution of the case. The first proposition was whether any income accrued to the assessee under the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out inIndiaby the assessee, no income accrued to it either under section 5(2) or no income was deemed to accrue to the assessee under section 9(1) of the Act. 86. Turning to the DTAA betweenIndiaandSweden; Mr. Dastur drew our attention to Article 7 thereof which provided for the determination of the business profits. Under this Article, the business profits of a foreign enterprise are taxable inIndiaonly if that enterprise has a PE inIndia. Further, even if the foreign enterprise has a PE inIndia, the business profits that are taxable in its hands are only those which are attributable to that PE inIndia. 86.1 Mr. Dastur submitted that it would be his endeavour to show that the assessee was not liable to tax inIndiaeither under the Income-tax Act or under the DTAA. 86.2 Mr. Dastur thereafter took us through the relevant part in the order of the CIT(Appeals) where the provisions of section 5(2) and section 9(1) have been discussed by him. In fact the assessee has filed a cross objection against this part of the order of the CIT(A) but Mr. Dastur submitted that he would also support the ultimate decision of the CIT(Appeals) to the effect that there is no PE in India under Rule 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite this no business connection was found to be established. In CIT v. Gulf Oil (Great Britain) Ltd. [1977] 108 ITR 874, the Bombay High Court held that even if the foreign company acts through its subsidiary in India, no business connection could be inferred. Mr. Dastur laid much stress on the judgments of the Madras High Court in CIT v. Anamallais Timber Trust Ltd. [1950] 18 ITR 333 and Annamalais Timber Trust Co. v. CIT [1961] 41 ITR 781. In the first of these decisions, the question examined was with reference to pure accrual of income in a case where the contract of sale was signed inIndia. It was held that a very small portion of the income did ace rue inIndiabecause the contract was signed inIndia. In the second decision, the Madras High Court held that only 10% of the profits may be apportioned to the trading operations carried on inBritish India, in a case where the negotiations in respect of the contract took place inBritish Indiaand the contract was also concluded inBritish India. Relying on this decision, it was submitted by Mr. Dastur that in the present case even this much of profit, if considered as having accrued in India, would be excessive because under the mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cellular operators, the works contract being the Setting up of the GSM cellular system. His preliminary objection was that this is a new case made out by the Department at the stage of the Tribunal which should not be permitted. Nevertheless, he proceeded to meet the Objection on merits. He pointed out firstly that the A.O. himself has not made a single assessment combining the profits of the supply contract and the, installation contract. The installation profits have been assessed in the hands of a different entity namely the Installation Contractor, which according to Mr. Dastur, nullifies the works contract theory put forward by Mr. Sharma. Similarly, he pointed out that the business promotion profits have been assessed separately in the hands of the EFC/ECI, which also weakens the argument of Mr. Sharma that the assessee had executed a works contract for the cellular operators. In this behalf he filed copies of the assessment orders of Ericsson Communications Pvt. Ltd., the Indian company, for the assessment years 1997-98 to 2001-02 as well as the assessment orders of Ericsson Telephone Corpn. A.B. for the assessment year 1997-98. He pointed out that these assessments hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him on the judgment of the Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706. He pointed out that in this case the ruling of the Supreme Court in McDowell's case has been considerably watered down, and it has been held that so long as a transaction is legally valid, its economic effects are not to be looked into. He pointed out that a mere reference to the rule in McDowell does not carry the case of the revenue further, unless some evidence or material is brought forth, in support of the claim of tax evasion. 86.8 Referring to Mr. Sharma's strong reliance on the judgment of the Supreme Court in 20th Century Finance Corpn.'s case, Mr. Dastur submitted that the question before the Supreme Court was whether it was competent for a State Government to impose sales-tax on the transfer of the right to use any goods for any purpose and further whether it was competent for the State Government to legislate on this subject. These questions have nothing to do with the question that is to be decided in the present case. In the cited judgment, the Supreme Court was not concerned with the pure concept of sale as defined in the Sale of Goods Act, 1930 but was concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pact on the controversy arising in the present appeals. He first referred to Article 7 which speaks of business profits. Under this Article, the business profits of the Swedish enterprise is taxable inIndiaonly if it has a PE inIndia. The importance of having a PE is that even if a sale is completed inIndiaand is, therefore, taxable under the Income-tax Act, it can be taxed in the hands of the Swedish enterprise only if it has a PE inIndia. Article 5.1 speaks of what a PE is. Broadly a PE is the fixed place where the business of the Swedish enterprise is carried on. The business should have been carried on through the PE, and PE should be an identifiable place of business, the PE should be a place available to the assessee as a matter of right and shall always be at its disposal. It is for the income-tax department to establish that the Swedish enterprise has a fixed place of business inIndiaavailable to it as a matter of right and is at its disposal and which thus amounts to a PE. A mere averment that the Swedish enterprise has an associated enterprise inIndia, without anything more, is not sufficient to establish that it is a PE. Article 5.2, which defines PE. is an inclusive def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harma, the learned counsel for the Department, it has been stated that the assessee's employees have come toIndiato negotiate the contract. If it is the Department's case that it is the employees of the assessee who had come toIndiato negotiate the contract, it cannot be postulated that ECI was habitually exercising the authority to conclude the contracts. Mr. Dastur also pointed out from the various terms of the Marketing and Business Promotion Agreement that ECI had a very limited authority to act on behalf of the assessee. He filed a list of persons who actually signed the contracts with the ten cellular operators and pointed out that neither the branch nor ECI had signed any of them. 87.4 Coming back to the double tax treaty, Mr. Dastur referred to Article 5.6, which says that Article 5.5 will not apply if the person who is alleged to be the agent of the foreign enterprise inIndiais acting as an agent with an independent status and in the ordinary course of his business. In other words, if the person alleged to be the agent of the Swedish enterprise himself is carrying on a business of acting as an agent in his own status, he cannot be construed as an Agency PE merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the place of its own right and not by permission. In this connection, Mr. Dastur pointed out that the fact that the assessee's employees fromSwedenat times sat in the office of the ECI, while inIndia, does not satisfy this condition, namely, that they should be able to walk in and use the premises of their own right and not by permission. The permission of ECI would have been necessary for the assessee's employees to use the premises of ECI and that does not constitute a fixed place PE of the assessee. The burden was on the Department to show the existence of a right on the part of the assessee to use the premises whenever it wished and for whatever duration, which has not been discharged in this case. 87.6 Reference was made to certain portions of Phillip Bakers book on International Double Taxation Treaties where he has expressed the view that in determining the existence of a PE, it must be ensured that the enterprise has a right to occupy the premises though it may not either own the premises or have taken it on rent. Thus the crucial question for determining the PE is whether the premises could be occupied as of right. Mr. Dastur submitted that the CIT(A) in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the incorrect facts and assumptions made by the Assessing Officer in connection with the existence of a fixed PE of the assessee inIndia. He submitted that the ultimate decision of the Assessing Officer that the assessee has a fixed PE inIndiais also a mere assumption not based on any facts, which has been rightly over-turned by the CIT(A). 88. Turning now to the question of permanent establishment and the findings of the CIT(A) and the arguments of Mr. G.C. Sharma, learned Sr. counsel for the Department, Mr. Dastur strongly relied on the findings of the CIT(A) in paragraphs 8.1 and 8.3 to 8.6 of his order and submitted that no arguments were advanced by Mr. Sharma against those findings and, therefore, they must be taken as correct. He also submitted that all the findings of the CIT(A) were based on evidence and facts and so long as no material is produced on behalf of the Department to disturb those findings, the ultimate conclusion of the CIT(A) that the assessee did not have a fixed place PE in India, shall not be disturbed. With this preface, Mr. Dastur proceeded to refer to some of the authorities strongly relied on by Mr. Sharma to demonstrate how those authorities do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Sweden DTAA are present. This exercise, it was contended, has not been done by the Department. Referring to the written submissions filed by Mr. Sharma titled "Ericsson" in which submissions have been made on the basis of the Italian Court's decision vis-a-vis group PE, Mr. Dastur submitted that whatever has been claimed in the written submissions are only abstract propositions and not based on any facts. Such abstract propositions, about which nobody can have any quarrel, amounts to putting the cart before the horse, according to Mr. Dastur. 88.4 Mr. Dastur further drew our attention to paragraph 24 of the OECD Commentary, a copy of which is placed at page 109 of paper book No. 1 and read out the relevant portions thereof. He also drew our attention to paragraph 33 of the OECD Commentary which is at page 111 of the said paper book wherein it has been mentioned that it is necessary for the revenue to establish that the enterprise in one State had expressly given authority to the entity in the other State to conclude contracts on its behalf and unless this is present, the entity in the other State, in which the income is alleged to arise, cannot be considered as the Agency PE. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessed as profits arising to the assessee for signing contracts in India, on the basis of the judgment of the Madras High Court in Annamalai's Timber Trust's case, the ECI having been paid commission of 18%, the assessment would get extinguished. 91. Before concluding his arguments on this issue, Mr. Dastur submitted that the case of Ericsson arises out of the facts which are different from the facts in the case of Motorola,; which was also heard by the Special Bench and, therefore, the broad claim of Mr. G.C. Sharma that his arguments in the case of Motorola on this issue may be adopted in the case of Ericsson also, should not be accepted, especially in the absence of anything to show specific instances of similarity between the two cases. 92. Mr. G.C. Sharma, learned counsel for the Income-tax Department in his rejoinder to the arguments of Mr. Dastur in the appeal filed by the Department, submitted with regard to the preliminary objection raised by Mr. Dastur against ground No. 1 not raising the question as to whether the contract for installation can be interpreted as a works contract and, therefore, it is not open to the Department to make Submissions on this aspect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk. If the price is linked with the progress of the work, it is a clear pointer to the fact that it is a works contract or a turn key project. There was also reference to "interface" in the supply contract at many places, which meant that there has to be a connection between the supply, and the installation contracts. Clause 17 of the supply contract referred to "project" which again meant the whole contract including the installation. Clause 18.1 stated that the acceptance test shall be done by the installation contractor. According to Mr. Sharma the reference in the supply contract to the acceptance test being done by the installation contractor clearly established the close nexus between the supply and installation agreements and proved clinchingly that both are one and the same, divided only for purposes of income-tax. 94. Mr. Sharma thereafter referred to the installation contract and submitted that this was also entered into on2-7-1996, the same day as the supply contract. The preamble to the installation contract referred to the hardware and software "belonging" to JTM. The question posed by Mr. Sharma was that on the very day the contract was entered into, it cannot be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is plea he strongly relied on the judgment of the Supreme Court in the case of 20th Century Finance Corpn. and reiterated his submission that the place of execution of the contracts determined the situs of the sale and consequently the place of accrual of the income. 98. Mr. Sharma, the learned counsel for the department, next submitted that there was a business connection in this case and nothing but the business connection as indicated by all the agreements. He explained that the business connection is also established by the fact that the consumer in India, when he uses the cell phone, the call is routed through the cell operator and the cell operator has a close connection with the assessee in the sense that it is the assessee who provides the income to the cell operator by allowing the cell operator to use the system for the purpose of facilitating the calls. Thus the connection between the assessee and the consumer, through the cell operator, is established. This, according to Mr. Sharma, is a business connection within the meaning of section 9(1)(i) of the I.T. Act. He further explained that by this connection, the installation or the marketing company does not earn any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary assisted the revenue on the point of business connection. 100.3 As regards Energomach Exports' case, a judgment of the Karnataka High Court cited on behalf of the assessee, Mr. Sharma submitted that unlike in the cited case, in the present case, the assessee is interested in the installation contract as well as in the companies to whom installation and marketing contracts were given and, therefore, there is business connection. 100.4 With regard to Alcatel, which is an order of the Delhi Bench of the Tribunal, it was submitted that the decision is based on the fact that all the agreements in that case were separate and distinct, whereas in the present case they are to be read with each other as one integrated whole and if so read the ratio of the order will not be applicable. He further pointed out that the decision of the Delhi Bench was based on two concessions made on behalf of the assessee and further as para 41 of the said order shows, the question largely depended on the nature of the operations that were carried out in India. In the present case, however, according to Mr. Sharma since all the operations are carried out inIndia, the ratio of the order of the Delhi Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". The assessee company is incorporated inSwedenand is a 100% subsidiary of Telefonaktiebolaget L.M. Ericsson (LME for short). It is one of the leading suppliers of telecommunication equipment comprising of both, hardware and software. There is another company by the name Ericsson Telephone Corporation India AB, also incorporated inSwedenand a subsidiary of LME. It has a branch inIndiaand for short, this company will be referred to as EFC. There is a third company by the name of Ericsson Communication Ltd. (ECI for short) and this was incorporated inIndia. 104. The assessee company had entered into agreements with ten cellular operators inIndiafor supply of hardware and software during the relevant year, hereinafter referred to as the Supply Contract. EFC had entered into installation contracts with the various cellular operators. These contracts remained with EFC for a period of three months up to June, 1996. Subsequently, on the incorporation of ECI, these contracts were assigned to ECI from July, 1996 onwards. The Assessing Officer was of the view that the income of the assessee was taxable inIndia, both, under the Income-tax Act, 1961 as well as under the treaty betweenIndiaa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Assessing Officer without any success. 105. The CIT (Appeals) considered the elaborate submissions of the assessee and discussed the issues at length. He observed that all the agreements were entered intoIndiaand were to be governed by Indian laws. After considering the various clauses of the agreements, he observed that it was not a case of single sale or not a case of a series of unconnected sales. The agreement was to put in place the GSM system for the use of the cellular operators. The agreement took into account that contractors will install the equipment and software and their tests will determine the acceptability or otherwise of the supplies made by the assessee for setting up GSM system. In fact, according to the CIT (Appeals), admittedly, the acceptance test was a milestone for payments insofar as that the payments were to start after the acceptance test. The CIT (Appeals) further observed that the Installation Contract was inextricably linked with the supply contract in so much so that the tests carried out by the contractor were binding on the assessee. Only they were to be carried out by two separate persons who were in full knowledge of the work to be pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that it cannot be said that various concerns were formed purely with a view to avoid or evade tax inIndia. They were not mere paper companies having no business purpose in India and hence, the assessee and the contractors were held to be separate persons and that the office of the contractors cannot be taken to be the office of the assessee, particularly in view of the fact that the Assessing Officer was not able to specify as to which and how many employees of the assessee stayed in India for full year and used the contractor's office for conducting assessee's business. Thus, it was held that the assessee had no fixed place PE inIndia. The CIT (Appeals) also held that the installation projects cannot constitute a PE for the assessee in view of: (a) Board's Circular No. 1829 with regard to power projects, and (b) the contractors had been assessed separately on the income earned by them. The CIT (Appeals) further held that the contractors had no authority to conclude any contract on behalf of the assessee, and hence they did not constitute a dependent PE also. In the final analysis, the CIT (Appeals) held that the assessed did not have any PE inIndia, the necessary consequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment to the lessees at the specified locations for use. According to the petitioners, one transaction of transfer of right to use goods was subjected to sales tax by more than one State. Some States levied tax on the petitioners, merely because the goods were found to be located in their States at the time of execution of contract which had taken place outside the State. Some States levied tax when the goods were delivered in their States for use in pursuance of agreement of transfer executed outside their States and some States taxed such transactions of deemed sales on the premise that agreements for transfer of right to use had been executed within their States. The questions, therefore, that arose for consideration of the Court were, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use were located within its State irrespective of the facts that - (a) the contract of transfer of right to use had been executed outside the State; (b) sale had taken place in the course of an inter-state trade; and (c) sales were in the course of export or import into the territory of India. 112. While dealing with the above ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, cannot be accepted because this conclusion is based on a judgment (20th Century Finance Corpn) which has no applicability to the facts of the case. As a matter of fact, the issue will have to be approached on the basis of the provisions of Sale of Goods Act to which we shall advert a little later. Before that it would be pertinent to deal with the works contract theory put forward by Mr. Sharma on behalf of the revenue. In connection with this argument, Mr. Sharma heavily relied on the judgement of the Supreme Court in the case of Hindustan Shipyard Ltd. 114. In this case, the assessee was engaged in building ships for different ship owners under orders placed by them. The assessee was claiming it to be a works contract and not a contract for sale, thereby claiming exemption from sales tax under the Andhra Pradesh General Sales-tax Act, 1957. One of the clauses in the contract deed provided that the property in the vessel was to pass to the buyer with the payment of the first instalment of price. However, the Supreme Court observed that one is not to be guided by the face value of the language employed; one has to ascertain the intention of the parties. The Court took note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certaining the intention of the parties in this regard. Let us examine them. 116. Section 18 of the SOG Act provides that no property in the goods is transferred to the buyer unless and until the goods are ascertained. It is nobody's case here that the goods in question were unascertained goods. Section 19(1) of the SOG Act provides that in case of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Section 19(2) provides that for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Section 19(3) provides that unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. We now proceed to examine the contracts in the present case in the light of these provisions. The supply contract is entered into between the assessee and the cellular operator (JT Mobiles is taken as an illustrative case). The installation contract is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents should be construed as one to regard it as a works contract. 118. Then, the price payable under each agreement, terms of payment and performance guarantee to be provided by each contractor are according to their respective responsibilities under the agreement. As per clause 12 of the Installation Contract, it is the responsibility of the installation contractor to perform the installation. The supply contractor is in no way connected with the installation plan. JT Mobiles' undertakings under both the agreements are materially different. We are told that the Project Manager under the Installation Contract is to be at the site of installation. Supply Contract provides that Acceptance Test shall be carried out by the Installation Contractor in accordance with the terms and conditions stipulated in the installation contract. The Supply Contract, of course, also provides that the acceptance test carried out by the Installation Contractor shall be binding on the Supply Contractor. However, this needs to be appreciated in its proper context. Earlier, we have mentioned that in such specialized equipments, the supplier also will be concerned about its proper functioning. The malfunct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two agreements, we come to the most important clause of title and risk. Clause 13.1 provides that the risk of loss and damage to the System, the Spare Parts, the Testing Equipment and the Documentation, shall pass to JT Mobiles when delivered to the carrier at the port of shipment in Sweden to the city of India. Clause 13.2 provides that the title to hardware, spare parts and test equipment shall pass to JT Mobiles when delivered to the carrier at the port of shipment in Sweden Reverting back to the provisions of SOG Act, the basic rules regarding transfer of property in goods are contained in sections 20 to 24. Section 20 provides that where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. It is not in dispute that the goods were ascertained and were in a deliverable state. It is also not in dispute that the seller (i.e. the supply contractor) had to do nothing to ascertain the price or that the goods were sent on approval basis. Therefore, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine months. On perusal of both the agreements we find that the Indian Counterpart (be it EFC or ECI) is to render services to the Swedish company, i.e. the assessee, only on broad lines, viz. (a) promotion of the products of the assessee in India, and (b) provision of information on business opportunities in India for the assessee in relation to its products. Further, it is specifically provided inter alia, that the Indian counterpart has no role to play as a mediator between the assessee and any Indian buyer, it cannot bind the assessee in any manner while promoting its products in India and that the final terms of contract for sale of products with an Indian buyer will be decided by the assessee only. It is also stipulated that nothing in the agreement shall create or shall be deemed to create any relationship of agency, partnership or joint venture between the parties. Moreover, nothing has been brought on record to show that the parties have acted otherwise. The Indian counterpart has neither exercised nor habitually exercises any authority to conclude any contracts on behalf of the assessee. Neither the party to the marketing agreement, nor the installation contractor maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement. It needs to be appreciated that the arrangement by way of an overall agreement is nothing new and has been invoked in such contracts. When different entities are working for the ultimate commissioning of the project, the Indian buyer, or for that matter any buyer needs to be installed with confidence that the project will ultimately take off and be on stream as desired. For this, an overall responsibility needs to be fixed. Ultimately, the installation contractor has to install the equipment supplied by the supply contractor. In that case we see no reason as to why the two should not work in a coordinated manner. In fact, it is of utmost necessity. But merely because they are working in a coordinated manner, the separate contracts do not lose their sanctity and enforceability and the parties to the respective contracts remain bound by the terms and conditions of those contracts. Board's Instruction No. 1829 dated21-9-1989supports this contention. The said Instruction, of course, pertains to power projects, but the principles apply to all big projects with equal force. Considering the terms of the contracts in the present case in the light of the above Instructions, no payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allation contracts is assessed in its hands. Further, evidence that it is an independent entity is reflected from the assessment order for the assessment year 1998-99 wherein it is mentioned that the company has set up a unit in software technology park atBangaloreand has claimed its income of Rs. 91,39,921 as exempt under section 10A of the Act. Thus, in view of these facts, there is no reason to treat the three contracts as one works contract. 123. In the final analysis, we hold that: (a) the three companies, viz. Ericsson Radio Systems AB (ERA, the assessee), Ericsson Telephone Corporation (India) AB (EFC) through its branch inIndiaand Ericsson Communications Ltd. (ECI) are three independent entities doing business independently, (b) the three contracts, viz. the supply contract, the installation contract and the marketing and business promotion agreement are separate and independent contracts and are not to be treated as one integrated works contract despite the overall agreement; (c) the assessee had no business connection inIndia, (d) the sales of GSM Mobile Telephone System by the assessee to the cellular operators inIndiatook place outsideIndia; and hence, (e) n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent Establishment" (PE). The Assessing Officer has partially reproduced this article in his order to the extent considered necessary by him. However, it appears that he has reproduced the said article from the new treaty which came into force from25-12-1997. For the purposes of this appeal, since the accounting year ended on31-3-1997, we shall be referring to the earlier treaty which was entered into vide Notification. No. GSR 380(E), dated27-3-1989and which is given at page 83 of assessee's paper book-1. The Assessing Officer has held as follows: 1. That there is a dependent agent PE in the form of EFC (for 3 months). 2. That there is a dependent agent PE in the form of ECI (for 9 months). 3. That there is a PE in the form of a branch providing fixed place of business to the assessee. 4. That the office of ECI is a fixed place of business for the assessee company. 5. That the employees of the assessee company were coming toIndiaand signing contracts and were staying inIndiaand using various facilities which clearly showed that the assessee had a fixed place of business. 126. The arguments of the Assessing Officer for arriving at the above conclusions can be summarized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and a specific geographical point. It has to have a certain degree of permanency. It is emphasized that to constitute a "fixed place of business", the foreign enterprise must have at its disposal certain premises or a part thereof. Phillip Baker in his Commentary on Double Taxation Conventions and International Tax Law (3rd edition) states that the nature of the fixed place of business is very much that of a physical location, i.e. one must be able to point to a physical location at the disposal of the enterprise through which the business is carried on. On the other hand, possession of a mailing address in a state without an office, telephone listing or bank account - has been held not to constitute a permanent establishment. Further, the fixed place of business need not be owned or leased by the foreign enterprise provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises. 128. Reverting to the facts in the case of Ericsson, it is not in dispute that the assessee has no office inIndia, either owned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one mentioned in item (h), i.e., premises used as a sales outlet or for receiving or soliciting orders. This allegation is on the basis of the Marketing Agreement entered into by the assessee with ECI. However, while dealing with the issue of business connection earlier, we have already held that nothing really turns on it. ECI has no authority to conclude any contract on behalf of the assessee and none of its actions can bind the assessee. When such is the arrangement, it cannot be said that the premises of the ECI were being used by the assessee for its business or that it really did some business from the said premises. Therefore, under Article 5.2 also it cannot be said that the assessed had a PE inIndia. 130. As per Article 5.3 of the DTAA, the term "Permanent Establishment" encompasses a building site, a construction assembly or installation project or the like or supervisory activities in connection therewith where such site, project or activity continues for a period of six months. In the present case, the assessee (Ericsson) had entered into contracts with ten different cellular operators for the supply of GSM equipment. Thus, ten systems were to be installed by the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent agency shall not constitute a PE for the foreign enterprise. However, if the activities of such an agent are devoted wholly or almost wholly for the foreign enterprise or for enterprises subject to the same common control, then such an agent shall be considered a dependent agent. However, in such a case, provisions of clause 5.5 will apply. 132. Even though in para 122 we have held that all the three companies are of independent status notwithstanding that they belong to the same group, if we assume for the sake of argument that ECI is subject to the same common control as the assessee as both are subsidiaries of LME and that all its activities are devoted to the assessee, yet it will not become an Agency PE for the assessee because (a) it has not, and does not, habitually exercise, in that State (in India) and authority to conclude contracts on behalf of the assessee (Ericsson) or (b) it does not habitually maintain in India a stock of goods or merchandise from which it regularly delivers goods or merchandise on behalf of the assessee. While dealing with the issue of "Business Connection", we have given a categorical finding that ECI has no role to play as a mediator b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were. In the present case, there is no finding that either EFC or ECI were instrumental or even participated in the negotiations with the cellular operators. Thus, even the conduct of the parties, on which Dr. Klaus Vogel lays emphasis, do not go to suggest in any way that EFC or ECI could be impressed with a stamp of permanent establishment for the assessee inIndia. The Assessing Officer has laid much stress on a number of employees of the assessee coming to and staying inIndiafor long periods and making use of the facilities of EFC and ECI. However, as found by the CIT (Appeals), there are no details to support this claim of the Assessing Officer. In the absence of any details, it cannot be held that the assessee had a PE inIndia. 133. In the case of Hindustan Shipyard Ltd. the Andhra Pradesh High Court observed that whether it is goods that are supplied or services that are rendered, the common thread of mutual interest must run through the fabric of the trading activities carried on outside and inside the taxable territories. The commonness of interest may be by way of management control or financial control or by way of sharing of profits. It may also come into existence in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horized or empowered to transact any business in the name or on account of CIT Alcatel. In consideration, of the support services, MCPL was to receive a lumpsum of Rs. 60 lacs for the calendar year 1983. Thereafter, the lumpsum was to be revised twice a year by mutual agreement to reflect the volume of the services actually rendered. The attempt of the department was to treat MCPL as the PE of the assessee company inIndiaarid inter alia, to tax the profit arising from the sale of equipment made to the Government of India, though the same was delivered in France FOB French Port. 136. Almost identical arguments were advanced by the Department in that case as they are advanced before us, viz. (a) all the agreements should be seen as only one agreement, (b) it was like a works contract, (c) it was a turnkey contract, (d) title in the goods was not passed to the Indian party at France, (e) that acceptance certificate was the key to the supply contract, (f) that the assessee had a business connection in India and (g) that the assessee had a PE in India. The Tribunal rejected all the arguments of the department except that about PE inIndia. But the argument regarding PE came to be accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining a formula and paying royalty for the same. In recital No. 2 of the agreement at page 20 of the paper book No. 1, the software is referred to as "application software". This only means that the hardware and software constitute one integrated telephone system. It was clarified that the word "license" was used in connection with the payment for software only because the software was given to the assessee with certain restrictive conditions and from the mere use of that word, it cannot be inferred that the payment was similar to a license fee and hence royalty. The software was given to the assessee in perpetuity and so long as the system was to be operated by the assessee, the software would also be operated as part of the system. 140. In support of the above argument, Mr. Dastur drew our attention to certain clauses in the supply agreement. Clause 7.1 defines the word "price" as the total price fixed for the system as as a whole. It was clarified that Annexure-V to the supply contract did show separate price for the software but that was only for the purpose of paying customs duties to the Indian Government Clause 13 provided that the risk in the software passes simultaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eo tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films. The Assessing Officer's stand, relying on the second proviso to section 9(1)(vi), is that the software supplied by the assessee along with the hardware is not covered by any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986, of the Government of India and, therefore, the payment made by JTM would be considered as royalty under the main provision. The argument of Mr. Dastur, the learned counsel for Ericsson is two fold. It is firstly contended that computer software is protected by the copyright law ofIndiaand section 2(o) of the Copyright Act, 1957 defines "literary work" to include computer programmes, tables and compilations including computer databases. The computer programmes are not capable of being protected by patent. Once it is so classified, it is not permissible to treat it as forming part of clause (i) or (iv) of Explanation 2 to section 9(1)(vi) and consequently it cannot be brought to tax within these clauses. Secondly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The argument is that under the DTAA it follows that the amount of royalty would vary with the use whereas in the case of a lump sum consideration, it is not linked with the use and is payable irrespective of whether it is used or not. One may not use it because of various reasons such as new technology replacing the old etc. Nevertheless the lump sum consideration would be payable. Another argument advanced on the basis of phraseology of Article 13.3 of the DTAA is this. The Article refers to consideration for the: use or right to use "any copyright of literary, artistic or scientific work" (underlining ours). The word "of" is not found between the words "copyright" and the words which follow, namely, "literary, artistic or scientific work" appearing in clause (v) of Explanation 2 to section 9(1)(vi). It is argued that the word "of" should be read between the word "copyright" and the words which follow, namely, "literary, artistic or scientific work" appealing in clause (v) to Explanation 2 of section 9(1)(vi). 141.4 Turning to Article 13.5 of the DTAA, it was pointed out by Mr. Dastur that royalty can be considered as business income if it is "effectively connected with a perma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle. 141.7 According to Mr. Dastur it has to be first ascertained as to under which part of the Explanation 2 to section 9(1)(vi) should the payment be settled. His submission was that if at all, the payment has to be slotted under clause (v) of the Explanation, which specifically deals with such a payment. In this regard, he contended that if the payment falls within a specific provision, that provision must be applied and only if it does not fall thereunder, can the general provision be resorted to. Accordingly, he contended that where the explanation contained a specific slot for "copy right" the clauses which applied to "similar property" cannot be said to include copyright. Therefore, if at all, only clause (v) of Explanation 2 can be invoked. In support of the general proposition that where there is a specific provision dealing with a particular type of payment, the general provision cannot be considered applicable, Mr. Dastur referred to the following judgments: 1. UCO Bank's case 2. Meteor Satellite Ltd.'s case 3. Copes Vulcan Inc.'s case 4. T.P. Sidhwa's case 141.9 Mr. Dastur then proceeded to consider the various clauses of Explanation 2 and pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any license in respect of a copyright. At this juncture, he gave an illustration of a publisher who gives to another person a right to print copies and sell. According to Mr. Dastur, this would amount to granting of license and will fall under section 9(1)(vi) of the Act. But if software is given, not per se as software but to make hardware work, then the consideration paid cannot be said to be for software alone. In that case, the payment would not amount to royalty. Reiterating his argument, it was submitted that as per the agreement, there was really no separate transaction for software. The purpose was to acquire the whole system for a lump sum price and that software was specified separately in the annexure only for the limited purpose of paying customs duty. In support of this contention, Mr. Dastur relied on the decision of the Supreme Court in the case of CIT v. Mugneeram Bangur Co. [1965] 57 ITR 299. He further contended by referring to pages 205 and 207 of paper book 2, that the assessee had accounted for the amount received for software under the head "Net Sales" in its books of account and that the Indian operator (RPG Cellular Services Ltd.) had accounted it as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the essence of copyright is with the holder thereof (Ericsson in the present case) who can do anything with respect to it in the public domain whereas the licensee of the copyright (JTM in the present case) cannot do so. As per clause 20.4(6) of the Supply Agreement, J.T. Mobiles cannot store or make copies of the software except for back-up purposes. Section 14(a)(i) of the Copyright Act permitted a holder of the Copyright to store or make copies for reproduction. Section 52(1)(aa) of the Act permitted the licensee of the copyright to store or make copies of the software only for back up or archival purposes, which would not be considered as an infringement of the copy right. Reading these provisions together, the position that emerges is that merely because J.T.M. could store or make a copies of the software only for back up or archival purposes, it cannot be said that it has got the copyright in the software. All that it has got is only a copyrighted article in the form of the software. The fact that J.T.M. cannot license or sell the software, is also incorporated in clause 20.4(d) of the Supply Agreement. In contrast, under section 14(b)(ii) of the Copyright Act, the holder o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion is not binding but has persuasive value. In this opinion, the distinction between copyright rights on one hand and a copyrighted article on the other hand, has been brought out fully and clearly. The contention on the basis of the opinion was that in the present case what JTM and other cellular operators have obtained is only a copyrighted article in the form of a software and not copyright rights. Reliance was also placed on pages 202 and 204 of paper book No. 2 which is the learned author Du Troit's Commentary in which similar views have been expressed. 142.3 Mr. Dastur referred to the decision of the Bangalore Bench of the Tribunal in the case of Lucent Technologies Hindustan Ltd. to emphasise the difference that had been brought out in the said decision between copyright and a copyrighted article. It was submitted by him that one cannot have a copyright without a copyrighted article, but one can have a copyrighted article without a copyright. In the present case, the software was stated to be only a copyrighted article and not a copyright. According to Mr. Dastur, the test to be applied is to ask the question whether the Indian company could have exercised any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, Article 13 of the DTAA does not refer to lump sum consideration. It refers only to "payment for use" and since as already contended this is not a payment for use of the copyright, even this Article is not applicable. 142.7 It was submitted by Mr. Dastur that by its very nature and as specified in section 14 of the Copyright Act, it is a right, something in abstract. However, when the software is imported in chattel form, according to Supreme Court, it is goods and attracts customs duty. According to him, then the question arises whether it can be a copyright and "goods" at the same point of time. According to him the answer has to be in the negative. He pointed out that copyright is an Intellectual Property Right (IPR) which when imported in a chattel form becomes goods. In support of this contention he referred to the decision of the Supreme Court in the case of Associated Cement Co. v. CC [2001] 128 ELT 21 and also to the case of State Bank of India v. CC [2000] 115 ELT 597 (SC). 143. Mr. Dastur summed up his arguments with regard to the taxability of the royalty payment as follows: (1) No copyright right was given within the meaning of section 14 of the Copyright ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 30 of the Copyright Act is a grant of authority to exercise a particular right. It gives only a limited right in the use of the copyright. The supply contract in the present case gives such an authority to JTM. There is, therefore, no need to refer to section 14 of the Copyright Act which refers to an exclusive right being granted. (4) Referring to various clauses of the supply agreement such as clause 20.1, 20.2, 20.5, 30.1 and 30.2 etc., Mr. Sharma submitted that all these clauses contain terms which are opposed to the concept of sale and, therefore, it cannot be said that the software was sold to JTM or other Cellular operators. It was merely licensed to them and the payment therefor was rightly taxed as royalty. Granting a license by the author of a copyright only means granting a limited right i.e. for the use for the purpose for which it is given and not for anything else. (6) Any interest granted in respect of a copyright which is a proprietary right means a right to use a copyright. (7) The sale of a computer programme contained in a software is a sale of a copyright by itself. (8) If the assessee exercised its right to sell the software, it would amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. As regards the order of the Bangalore Bench in the case of Lucent Technologies Hindustan Ltd., Mr. Sharma submitted that it is distinguishable on facts. 148. In his reply in the appeal of M/s. Ericsson Mr. Dastur contended as follows: (a) A license granted by Ericsson to the cellular operators will amount to a right in respect of a copyright, only if the cellular operator can exercise any of the rights mentioned in section 14 of the Copyright Act and if the cellular operator cannot exercise such rights, then the license cannot be in respect of a copyright right. This idea is expressed in section 30 of the Copyright Act itself. (b) In the present case almost all the rights mentioned in section 14 of the Copyright Act have been excluded. (c) Only if M/s. Ericsson gives a right to JTM or other cellular operators to sell or hire the software, can it be said that a copyright has been given and only then can the payment therefore amount to royalty (section 14(b)(ii) of Copyright Act). (d) It is not in all cases that one need to have the copyrighted article with him in order to exercise a copyright right. For example a listener of a speech can memorise a speech and reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a copyright right and a copyrighted article. The above are the broad submissions made by both the sides in the case of M/s. Ericsson. 149. The Assessing Officer, at the outset, referred to the preamble to the agreement between the assessee and the cellular operator from which it was gathered that the assessee had licensed the software and the customer had the right to use the software. Referring to the other clauses of the contract, it is stated by the Assessing Officer that the risk and title passed to the customer in the case of hardware but not in the case of software. He specifically referred to clause 18 of the agreement and observed that the right of the buyer was restricted in the following manner: (a) Buyer can use it for own operation and maintenance of the system and not otherwise. (b) Buyer has no title or ownership rights. (c) It is a trade secret of the contractor and is subjected to confidentiality. (d) Buyer cannot make it available to any person other than its employees. (e) It cannot make copies. (f) Buyer can neither license nor sell nor alienate or part with its possession. On account of the above restrictions, the Assessing Officer held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee has no PE inIndiaand, therefore, it cannot be taxed as business profits under Article 7 of the DTAA. However, the CIT(A) has held it to be taxable under Article 13 of the DTAA. The basic premise on which the CIT(A) has rested his decision is that the software supplied by the assessee was loaded on to the handset of the mobile subscriber and that the consideration for use of the said software depended upon the number of customers of the operator. This is factually wrong. Actually, the software supplied by the assessee is, what can be termed as installed capacity. In other words, the system supplied by the assessee, comprising of the hardware and the software, can handle a particular number of subscribers. If the number of subscribers go beyond the installed capacity, then the cellular operator has a right, under clause 26 of the supply agreement, to purchase additional hardware and soft ware. 152. Further, the finding of the CIT (Appeals) to the effect that the software is partly loaded on to the handsets of the subscribers, has been specifically challenged by the assessee in ground No. 9. Added to this is a certificate issued by Reliance Telecom, a cellular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... network, say HUTCH, has a freedom of connecting into any other network of a different cellular operator, say BPL, while roaming to another city (if authorized) within the country or outside the country. The above referred Network can be of two different cellular operators, having different hardware and software supplied by two different GSM system suppliers. 153. To illustrate the example further, let us take the case of roaming access betweenBombayandDelhi. ABombaysubscriber of Hutch network (supplied by Ericsson) travelling or roaming toDelhihas a freedom to select and use any of the following networks which are operational inDelhi: Network Supplier of GSM system Airtel Ericsson Hutch Siemens Motorola Idea Nokia In the above example, the subscriber using the handset of any manufacturer (Samsung, Philips, Alcatel, etc.) in combination with SIM card of any manufacturer (Gemplus, Schlumberger) can select any of the accessible network of his choice while he is inDelhifor making and receiving calls. This clearly indicates that the cellular operator does not transfer or load any part of the software (comprised in the GSM system) on to the SIM card o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of, namely: "(a) in the case of a literary, dramatic or musical work, not being a computer programme, (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental; (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three-dimensio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k at the supply contract itself to find out what JTM, one of the cellular operators, can rightfully do with reference to the software. We may remind ourselves that JTM is taken as a representative of all the cellular operators and that it was common ground before us that all the contracts with the cellular operators are substantially the same. Clause 20.1 of the Agreement, under the title "License", says that JTM is granted a non-exclusive restricted license to use the software and documentation but only for its own operation and maintenance of the system and not otherwise. This clause appears to militate against the position, if it were a copyright, that the holder of the copyright can do anything with respect to the same in the public domain. What JTM is permitted to do is only to use the software for the purpose of its own operation and maintenance of the system. There is a clear bar on the software being used by JTM in the public domain or for the purpose of commercial exploitation. 158. Secondly, under the definition of "copyright" in section 14 of the Copyright Act, the emphasis is that it is an exclusive right granted to the holder thereof. This condition is not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to employees it has to be only on a "need to know basis" which means that even the employees are not to be told in all its aspects. What the assessee can do is only to tell the particular employee what he has to know about the software for operational purposes. The cellular operator has been denied the right to make copies of the software or parts thereof except for archival backup purposes. This means that the cellular operator cannot make copies of the software for commercial purposes. This condition is plainly contrary to section 14(a)(i) of the Copyright Act which permits the copyright holder to reproduce the work in any material form including the storing of it in any medium by electronic means. We may also notice section 52(1)(aa) of the Copyright Act which lists out certain acts which cannot be considered as infringement of copyright. The particular clause permits the making of copies or adaptation of a computer programme by the lawful possessor of the copy and the computer programme in order to utilize the public programme for the purpose for which it was supplied or to make backup copies purely as a temporary protection against loss, destruction or damage. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JTM or any other cellular operator has acquired under the supply contract is only the copyrighted software, which is an article by itself and not any copyright therein. 163. We may now briefly deal with the objections of Mr. G.C. Sharma, the learned senior counsel for the Department. He contended that if a person owns a copyrighted article then he automatically has a right over the copyright also. With respect, this objection does not appear to us to be correct Mr. Dastur filed an extract from Iyengar's Copyright Act (3rd Edition) edited by R.G. Chaturvedi. The following observations of the author are on the point: "(h) Copyright is distinct from the material object, copyrighted: It is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. The copyright owner may dispose of it on such terms as he may see fit. He has an individual right of exclusive enjoyment. The transfer of the manuscript does not, of itself serve to transfer the copyright therein. The transfer of the ownership of a physical thing in which copyright exists gives to the purchaser the right to do with it (the physical thing) whatever he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded in relation to computer programmes under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer programme. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the programme onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the programme. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the programme by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as commercial income in accordance with Article 7." 166. We may also usefully refer to the proposed amendments to the regulations of the Internal Revenue Service (IRS) in theUSA. Again these regulations may not be binding on us but they ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the programme may be fixed in the magnetic medium of a floppy disc or in the main memory or hard drive of a computer or in any other medium. 170. So far as the transfer of copyrighted articles and copyright rights are concerned, the regulation goes on to say that the question whether there was a transfer of a copyright right or only of a copyrighted article must be determined taking into account all the facts, and circumstances of the case and the benefits and burden of ownership which have been transferred. Several examples have been given below these regulations to find out whether a particular transfer is a transfer of a copyright right or a transfer of a copyrighted article. 171. The Commentary of "Charl P. du TOIT" on this question has been placed at pages 202 to 204 of Paper Book No. II. The Commentary is titled "Beneficial ownership of royalties in Bilateral Tax Treaties". He has opined that articles such as Books and Records are copyrighted articles and if they are sold, the user does not obtain the right to use any significant rights in the underlying copyright itself, which is what should determine the characterization of the revenue as sale proceeds rather th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or, in the view of most countries, by the fact that the payments are related to a contingency." 174. The observations made in the above Commentary, which though are not binding but are of persuasive value, show that where the price is paid for acquiring the ownership of the article itself, it cannot be termed as "royalty". To this extent the above observations do support the contention of the assessee that since the payment is only for the copyrighted article, it cannot be considered as royalty. 175. Coming to the question of splitting of the consolidated price paid in a lump sum, we need to refer to the Bill of Entry for import which is placed in Paper Book No. V filed by the assessee. This Bill of Entry for home consumption shows that a price has been separately mentioned for the software. This was sought to be explained on behalf of the assessee that since the software was also being imported alongwith the hardware, there had to be a separate value placed against the software for purposes of assessing the customs duty and it is only for this limited purpose tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere part and parcel of the sale consideration and could not be severed and treated separately as income of the non-resident company for services rendered by it in erection of the machinery. It must be noted that despite separate contracts being entered into between the parties, it was held that both constituted a single transaction. This ratio applies to the present case a fortiori. In the present case there is only one supply contract which includes the supply of both the hardware (GSM Cellular equipment) and the software which is part of the hardware. A single lump sum consideration is mentioned in the contract. Therefore, there is all the more reason to hold that the lump sum payment cannot be segregated into two, namely, one for the hardware and another for the software. 177. The judgment of the Madras High Court in Neyveli Lignite Corpn. Ltd.'s case also reiterates the aforesaid principle. In that case the price paid by the assessee to the supplier was a total contract price covering all stages involved in the supply of machinery from the stage of design to the stage of commissioning. It was held that the information concerning the working of the machine was incidental to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oIndia. According to section 2(22)(e) of the Customs Act, goods include "any other kind of movable property". The Court observed that the definition of "goods" is so worded that all tangible movable articles will be goods for the purpose of the Act, including any media whether in the form of books or computer discs or cassettes which contain information technology or ideas. In paragraph 30, the Supreme Court observed that though it is true that the technical advice or information technology is an Intangible asset, but the moment the information or advice is put on a media, whether paper or disc or any other thing, what is supplied becomes a chattel and customs duty is attracted. 182. Several earlier judgments have been noticed in this judgment, one of which is State Bank ofIndia's case. In this case the State Bank had imported computer software and manuals and it was held that these were goods on which import duty was payable. There is also reference to judgments of the English and American Courts. In St. Albens City and Distt. Council v. International Computers Ltd. [1996] 4 All E.R. 481, it was held that a computer programme on a disc should be regarded as goods. 183. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well-established position in law that the DTAA shall prevail over the provisions of the Act, the business profits, even if accruing to the assessee by way of signing of the contracts in India, would not be taxed because the assessee has no PE in India as required by Article 5 read with Article 7 of the DTAA. 186. To sum up our decision in the case of Ericsson: Assessee's appeal: (ITA No. 815/Del/2001). Ground Nos. 1-4: The notice under section 142(1) has been issued beyond the limitation period and hence invalid. Consequently, the assessment is invalid. Ground Nos. 5, 7 to 9: The amounts received by the assessee for the software cannot be assessed as "royalty" either under the Income-tax Act or under the DTAA. Ground No. 6: The assessee has no "business connection" inIndiaand hence no income accrued under section 9(1)(i) of the Income-tax Act. Department's Appeal (ITA No. 1798/Del/2001) Ground No. 1: The CIT (A) was right in holding that assessee did not have a PE inIndia. Ground No. 2: Consequently, the CIT (Appeals) was also right in holding that the income from the supply of software is not taxable as business income. Ground No. 3: The CIT (Appeals) did not er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90. Mr. Syali first took up ground No. 2 which relates to the existence of a permanent establishment of the assessee inIndia. In this connection, he read out the order of the CIT (Appeals) in detail. It was submitted by him that the CIT (Appeals) had categorically held in his order that there was neither a service PE nor an installation PE nor an agency PE belonging to the assessee inIndia. In this connection he referred to pages 24,25,26,30 and 31 of the order of the CIT(A). The CIT (Appeals), however, had held that the assessee had a fixed place PE inIndiain the form of office of the Indian company. It was contended that against the findings of the CIT(A) that there is no service PE or Installation PE or Agency recorded by the Commissioner, the revenue is not in appeal and hence what survives is only whether the assessee had a fixed place PE inIndia. It was submitted that assessment years 1995-96 and 1996-97 were the initial assessment years of the assessee for which no action was taken against the assessee. It was only for the first time during the year under consideration that the assessee was called upon to file its return of income by issue of notice under section 142(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental to the sales and not "de hors" the sales. Therefore, if they were incidental to sales, they cannot constitute a separate source for a PE inIndia. Again reverting to the aspect of passing of risk, it was argued that merely because the risk was to pass inIndia, it did not make the sale a conditional sale. In this connection, he referred to clause 13.1 of the contract and pointed out that the nature of risk described therein was only a loss on account of damage in which case the equipment was to be replaced but the contract was not to be repudiated. 191. Referring to the Supreme Court decisions in the case of H.E.H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 and in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532, it was contended that though the onus was on the assessee to show that its income was exempt, the initial onus was on the Department to show that there was some income earned by the assessee. No conjectures or surmises could be permitted to conclude that the assessee had earned any income. It was also submitted that there was no negative onus on the assessee to show that there was no income. In this connection, a decision of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him the important feature of this judgment is that it was held that in order that a foreign company may be said to have a PE inIndia, there must be evidence to show that it had "projected itself inIndia". The further feature of this judgment was that after the supply of the parts, by the foreign company, whatever takes place inIndiain connection with the supply, or sale, cannot amount to the existence of a PE. In the present case, the guarantee was given by the assessee company and the warranties were given by the Indian company to cover "coverage and services". The argument made out was that the guarantee given by the assessee is only for the sale of the equipment and nothing beyond and all the other warranties are those of the Indian company. These facts attract the ratio of the judgment of the Andhra Pradesh High Court and applying the ratio, it cannot be held that the foreign company projected itself inIndia. 194. Mr. Syali then referred to provisions of the DTAA betweenIndiaandUSA. According to him, two types of PE were envisaged under the DTAA - (a) where part of the enterprise was functioning inIndia, and (b) where there was a legally separate entity which was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT [2001] 251 ITR 53. On the basis of this decision, it is contended that the cell phone user merely makes use of the service made available to him and he is not in any way concerned with the actual working of the equipment. The finding of the CIT(Appeals) to the effect that the payment made in respect of the software is based on the number of cell phone subscribers is erroneous. The CIT(Appeals) has placed reliance on the ruling of the AAR in P. No. 30 of 1999 ABC In re's case in support of his conclusion. Mr. Syali pointed out that this judgment has been considered in the order of the Bangalore Bench of the Tribunal in the case of Lucent Technologies Hindustan Ltd. Finally, he referred to the suggestions made to revise the OECD Commentary on this aspect and it was contended that the doctrine of updated construction as referred to in the judgment of the Supreme Court in the case of CIT v. Poddar Cements (P.) Ltd. [1997] 226 ITR 625 should be invoked. Ground No. 4. This ground deals with the attribution of profits to the PE and is taken without prejudice to ground No. 2 which challenges the view of the Income-tax authorities that the assessee has a PE inIndia. The argument i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider as resulting in income which can be said to be, "derived" from the PE inIndia. Further, at any rate, the estimate of 40 per cent of the revenues as income attributable to the PE is arbitrary and excessive. 197. Mr. Syali thereafter submitted that there are guidelines as to the basis on which income may be attributed to a PE in the following authorities at which he placed strong reliance: (i) Ahmadbhai Umarbhai's case (in this case it was held that the attribution of income to the manufacturing activity should be greater than the attribution to the sale). (ii) Annamalai Timber Trust Co.'s case (in this case only 10 per cent of the income was attributed to the PE). (iii) CIT v. Bertrams Scott Ltd. [1987] 31 Taxman 444 (Cal.) (10 per cent attributed to PE). 198. The learned counsel for the assessee also referred to the relevant clauses in the DTAA with Vietnam, Malaysia and Indonesia which are countries where the assessee had no operations but had appointed agents under certain agreements to whom it had paid a commission of 4 per cent to 10 per cent which may give a broad indication that nothing beyond 10 per cent can be attributed to PE, if at all. 199. Mr. G.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n he pointed out to ground No. 9 of the assessee's appeal where this has been clarified by the assessee. It was, therefore, submitted that there is no factual basis to contend that all the three agreements have to be considered as a whole and an inference of works contract should be drawn. He further pointed out that nowhere in the contracts has it been mentioned that it is a turnkey or works contract, that there was no such person as a Project Manager which would normally be the case if the contract is on turnkey basis or is a works contract, that the employees of the assessee came to India on short visits only to supervise whether the equipment was being properly installed and from all these it was clear that it is not possible to treat all the three agreements as a whole and conclude that it is a turnkey project or a works contract. Mr. Syali referred in this connection to page No. 295 of the paper book where the definition of "GSM Cellular System" does not include a works contract. The definition of "subsidiary" includes only that entity which provides services or materials in connection with the supply contract and has nothing to do with the separate supply contract, a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. 205. In support of the argument that the three different contracts cannot be read as an integrated whole to contend that they constitute a works contract, Mr. Syali relied on the following authorities: 1. State ofRajasthanv. Man Industrial Corpn. Ltd. AIR 1969 SC 1245. 2. Vanguard Rolling Shutters Steel Works v. CST AIR 1977 SC 1505. 3.HindustanAeronautical Ltd. v. State of Karnataka AIR 1984 SC 744. It was submitted that in these judgments, several criteria, were laid down to find out whether certain contracts could be regarded as constituting a works contract and none of these criteria is satisfied in the present case. It was pointed out that it has been held specifically that if there is a separate contract for transfer of title (in the equipment) for a price and property passes therein, that cannot be considered as a works contract. In the present case, according to Mr. Syali this test satisfied and, therefore, the theory of works contract should not be accepted. 206. Turning to the question of tax avoidance or evasion, a point which was raised by Mr. Sharma on behalf of the Department, Mr. Syali submitted that under sections 91 and 92 of the Evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection, there should be not only a business connection but there should also be certain operations carried out by the foreign company in India and unless such operations are pointed out by the Income-tax authorities, no income can be taxed merely on the basis of a theoretical business connection. In this connection, Mr. Syali strongly relied on the judgment of the Supreme Court in the case of Carborandum Co. He emphatically denied that the subsidiary inIndia(Motorola India Ltd.) was the agent of the assessee. 209. As regards the question of "royalty", the only argument of Mr. Syali was that the payment was not linked at all to the number of subscribers and on this aspect as well as on other features, the facts of Motorola were the same as the facts in the case of Ericsson. 210. Coming to the aspect of "attribution of income" to the PE, Mr. Syali submitted that when the A.O. had made the attribution he had 4 PEs in mind. However, ultimately only one PE was upheld by the CIT (Appeals) and hence at the most 10 per cent of the sales can be attributed to Indian operations. Even that would not make the income taxable according to Mr. Syali because almost 15 per cent of commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so for as first ground is concerned, Mr. Syali appearing for the assessee submitted that section 9(1)(i) used the word "attributable" in Explanation (a) below the section. He emphasized that the word used was not "derived" which is of wider import and, therefore, a strict interpretation of the principles of attribution is called for. The situs of the sale of the equipment was not inIndiaand this also has to be kept in mind while attributing any income to the PE. According to him Rule 10 cannot go beyond the provisions of section 9(1)(i). The CIT(A) was wrong in his interpretation of Rule 10(ii). Rule 10 does not take care of the language of Explanation 2(a) below section 9. Therefore, according to Mr. Syali whatever is determined under Rule 10(ii) has to be further apportioned to the Indian operations under the provisions of Explanation 2(a) below section 9. It is necessary to clarify here that both the parties are aggrieved by the apportionment made by the CIT(A) by invoking Rule 10(ii) whereas the Department wants apportionment made by the AO to be restored. The assessee wants that the apportionment made by the CIT(A) by invoking Rule 10(ii) though correct in principle, the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved in the appeal and also in deference to the elaborate arguments addressed before us by both the sides, we would prefer to give our decision on all the grounds raised by the assessee as we have done in the case of Ericsson. Accordingly we proceed to consider the other grounds raised by the assessee in this appeal. 217. The 2nd ground relates to the question of Permanent Establishment. According to the Assessing Officer, the assessee had a PE inIndiaas follows: (1) Fixed place PE in the form of the Indian company namely Motorola India Ltd. (MINL), (2) Installation PE, (3) Service PE, and (4) DependentAgentPE. Though the A.O. held that the assessee had PEs in India as above, on appeal, the CIT (Appeals) has held that the assessee had only fixed place PE, within the meaning of Article 5.1 of the DTAA between India and U.S. He has held that the assessee cannot be said to have the other 3 types of PEs as held by the A.O. The Department has accepted this position and has not taken any ground against this finding of the CIT (Appeals) in its appeal No. ITA 2516/Del/2001. Therefore, the question which remains for our consideration arises only in the assessee's appeal wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the U.S. company. In other words the learned counsel for the assessee drew our attention to the observation of the CIT (Appeals) towards the end of para 6.4 at page 25 of the order in which he has recorded a finding that the employees sent by the assessee to India undertook activities on the part of "the appellant also" (underline ours) through the office of MINL and submitted that the finding really means that the assessee's employees were not only attending the work of MINL in India but also attending to the activities of the assessee which is not sufficient to attract Article 5.1. Considerable emphasis was placed on the use of the word "also" in the above sentence of the CIT (Appeals). In other words what the assessee contends is that its employees should exclusively work for the assessee only so that the office of MINL could be considered as a fixed place PE of the assessee inIndia. 220. It is a little difficult to accept the above submission on the facts of the present case. The employees were paid salaries by the assessee company and, therefore, prima facie it would appear that they worked only for the assessee company inIndia. They have also used the office of the MINL i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, Swedish company, had no right to enter the office of ECI inIndiafor the purpose of carrying out the activities of the Swedish company. It was only the facility offered by ECI to the employees of Ericsson gratis that they could enter the office of ECI for the work of Ericsson. That did not create any right in favour of the employees of Ericsson to enter the office of ECI as they pleased for the purpose of carrying out the activities of Ericsson. Nor did it create any impression in the minds of the business customers of Ericsson inIndiathat the office of ECI could be viewed as a projection of Ericsson's activities inIndia. There was also no allegation in the case of Ericsson to the effect that the employees of Ericsson worked for ECI also so that it could be said that they could, as a matter of right, enter the office of ECI and thereafter could perform some of the activities of Ericsson also. In the case of Motorola, however, the case has proceeded on the basis of an admitted position that the employees of Motorola have worked both for Motorola as well as MINL. There is no denial by Motorola that its employees had a right to enter the office of MINL inIndiaeither for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is a fixed place PE within the meaning of Article 5.1, the maintenance of such a fixed place of business was only for "other activities which have a preparatory or auxiliary character, for the enterprise" within the meaning of Article 5.3(e) of the DTAA and, therefore, under the negative deeming provisions thereof, the office of MINL cannot be deemed to be a fixed place of assessee's business. Article 5.3 says that "notwithstanding the preceding provisions of this Article, the term 'permanent establishment' shall be deemed not to include" the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise. The contention of the assessee is that the activities carried on by MINL for Motorola are of preparatory or auxiliary character. Reliance is placed on clauses (1) to (5) of Article 1.1 of the Services Agreement entered into on1-4-1996between the assessee and MINL. The nature of the obligations of MINL have been elaborated in these clauses as under: "Article 1 Duties of MINL 1.1 MINL undertakes the obligation to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance services etc. These are by all means only activities of preparatory or auxiliary character before the commencement of actual business of Motorola inIndia. These activities cannot be considered as activities in the course of the carrying on of the business by Motorola inIndia, but they are anterior thereto. This is also made clear by Article 7 of the Services Agreement which says that the Agreement shall remain in force only up to31-3-1997. The duration of the agreement itself is strong indication of the fact that the activities are prior to the commencement of business activities and are only basic or preparatory in nature. MINL has to perform these activities only for a period of one year. Once the agreement comes to an end there is no obligation on the part of MINL to perform the above activities. In these circumstances, we hold that the office of MINL inIndiais a fixed place PE of the assessee in terms of Article 5.1 of the DTAA but cannot be deemed to be so by virtue of Article 5.3(e) of the DTAA. Ground No. 2 is accordingly allowed. 225. The next ground namely ground No. 3 relates to the characterization of the revenues relatable to the supply of software. The Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the cellular operator. For these reasons, he has held that "there is a use of the software of the GSM by third parties also, namely, the customers." In our opinion, this is only a slightly different manner of saying the same thing which the CIT (Appeals) said in the case of Ericsson. Whereas in the case of Ericsson he held that the software is embedded in the handset itself which is used by the subscribers, in the case of Motorola he has held, without expressly giving a finding that the software is loaded on to the handset used by the subscriber, that the subscriber uses the software embedded in the hardware in order to get connectivity. Despite the slight difference in the language or the phraseology employed by the CIT, there is in substance no difference to what he really wants to convey which is that the subscribers used the software supplied by the assessee. We do not see any justification to take a view different from the view taken by us in the case of Ericsson merely because of the difference in phraseology or language employed by the CIT (Appeals) to denote the same thing, namely, that the subscriber uses the software. In the case of Ericsson we had held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding the nature of the payment made by the subscribers to mobile operator. A very clinching example given is that of a person who hires a taxi to move from one place to another. The Hon'ble High Court held that the person who hires the taxi pays for the taxi service as such and is not concerned with the technical operation or each and every part of the taxi. It was held that the person hiring the taxi was not paying the taxi fare as fees for having any technical service rendered to him. It would be better to reproduce the relevant portion of the judgment: "In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act." The above judgment clearly brings out the fallacy in the reasoning adopted by the CIT (Appeals) in the present case. The subscriber to the mobile telephone service pays for the service as a whole and he is not concerned with whether he gets the connectivity through the hardware or through the software or what are the technical aspects or steps involved in obtaining the connectivity. Therefore, the conclusion of the CIT (Appeals) that the subscriber paid for the use of the software is, with respect, misconceived. 229. For the above reasons, we hold that the payment for the software cannot be taxed under Article 12 of the Indo - U.S. DTAA as royalties. The ground is allowed. Ground Nos. 5 6. 230. We may now take up for consideration ground Nos. 5 6 of the appeal under the head "accrual of income" and "b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of section 9(1)(i) of the Income-tax Act. Our attention in this connection was drawn to the relevant provisions of the Sale of Goods Act, 1930 where a distinction has been made between the passing of the title and the passing of the risk. A reading of sections 26 and 40 of the aforesaid Act shows that the passing of the title and the passing of the risk need not be simultaneous; they can be effected at different points of time. Section 26 says that the goods remain at the seller's risk until the property therein is transferred to the buyer, but the parties can agree to the contrary with the result that even before the title to the goods passes, the buyer can undertake the risk. The section further says that when the property in the goods is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not. This, of course, is subject to section 40 which deals with risk where goods are delivered at a distant place as in the present case. This section says that where the seller agrees to deliver the goods at his own risk at a place other than where they were when sold, the buyer shall normally take any risk of deterioration in the goods nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein we have noted that in case the GSM equipment does not pass the Acceptance Test, the sale is not repudiated and the assessee is liable to replace the equipment in order to conform to the standards set by DOT. In other words what in effect we have held is that the sale was outsideIndiaand the assessee's responsibility continued thereunder which includes replacement of the equipment under the same sale contract. In line with our view taken in the case of Ericsson, we hold that in the present case also, where the terms of the contract are the same, the fact that the GSM equipment has to pass the Acceptance Test does not mean that the sale is completed only inIndia. 234. On behalf of the assessee another contention raised before us was that u/s 39 of the Sale of Goods Act wherein pursuant to a contract of sale, the seller is authorized or required to send the goods to the buyer, the delivery of the goods to a carrier whether named by the buyer or not, for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer. It was submitted that in the present case sub-section (1) of Section 39 is satisfied. Our attention was drawn to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, though they are insufficient to hold, because of the deeming provisions of Article 5.3 of the DTAA, that there is a PE inIndia, they are, in our opinion, sufficient to hold that there is a business connection inIndiathrough which income can be deemed to accrue to the assessee. These facts do not get obliterated just because of the deeming provision relating to PE. Moreover, there is no such deeming provision in the case of business connection in section 9(1)(i) of the Act to the effect that these activities are not sufficient to constitute a business connection. Therefore, we have to hold that there is a business connection inIndia. 236. Here again it would be appropriate to distinguish our decision in the case of Ericsson with regard to business connection. In that case we have held that there is no business connection inIndia. The reason for our view is that the Indian company in the case of Ericsson (ECI) did not carry out any activities on behalf of Ericsson. Nor was there any evidence or finding by the Income-tax authorities to show that ECI carried out any activities on behalf of the assessee. In the case of Ericsson, we have also held that business connection cannot a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no scope for attributing any income to the so-called PE. We may add that we have taken a similar view in para 212 in the case of Ericsson. 238. To sum up our findings, we hold that: Assessee's appeal (ITA No. 2455/Del/2001) Ground No. 1: The notice issued u/s 142(1) is invalid since it is issued beyond the period of limitation and consequently the assessment is also invalid. Ground No. 2: The CIT (Appeals) was not right in holding that there is a PE of the assessee inIndia. Ground No.3: The CIT (Appeals) erred in holding that the amounts received by the assessee for the supply of software shall be assessed as "royalties". They are not so assessable, either under the Income-tax Act or under the DTAA. Ground No 4: There is no scope for attributing any profits, in the absence of any PE inIndia. This decision is consequential to our decision in respect of Ground No. 2. Ground No.5: The CIT (Appeals) was wrong in holding that the sale of the GSM equipment took place inIndiaand income accrued to the assessee inIndiau/s 5(2). Ground No.6: The CIT (Appeals) was right in holding that there is a "business connection" inIndiau/s 9(1)(i) of the Act. However, no income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the question of business connection in detail. In disposing of these appeals, we have taken note of the written submissions titled "Facts in brief" which were separately filed by the assessee. These written submissions were also explained before us in the course of the arguments. 242. Taking up the contract entered into between the assessee and Tata as representative of all the contracts involved in the present case, Mr. Syali submitted firstly that the assessee did not undertake any obligation beyond the obligation to supply the equipment. All the other obligations which were undertaken by the assessee were all related only to the supply of equipment and not beyond. Both the title and the risk in the equipment passed simultaneously inHelsinki,Finland, i.e., outsideIndiathough the delivery of the equipment was to be inIndia. Dealing with clause 6.1 and clause 6.3 of the supply agreement, it was submitted that the income-tax authorities were not justified in saying that these two clauses were inconsistent with each other in the sense that the risk though professed to be transferred outside India actually was transferred only in India as the assessee was liable to bear the transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of and both had no connection with each other. Under section 25 of the said Act, there can be no reservation of the "right of disposal" over the equipment. Consistent with this provision, the assessee had not reserved any right of disposal over the equipment, once the title and risk had passed. In this connection he referred to a judgment of the Madras High Court in the case of State of Madras v. Ramalingam Co. AIR 1956 Mad. 695 and submitted that there was an exhaustive discussion of the subject in this case. Referring to the letter of assignment in this case Mr. Syali drew our attention to the judgment of the Supreme Court in the case of Kharday Co. Ltd. v. Raymond Co. (India) (P.) Ltd. AIR 1962 SC 1810 and to page 22 of the written submissions filed by him. It was submitted that though the contract was assigned to Nokia Pvt. Ltd. (NPL), the assignment letter made it clear, that NPL was to act as an independent contractor, however, subject to the condition that the assessee would continue to be liable for the performance of NPL. Thus the assessee continued to be liable under the supply contract as if it was executing the same. 244. According to Mr. Syali, the question wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, the argument was that supervision is not an economically significant activity of the PE and, therefore, it is impossible to concede a PE merely for supervision. It was further submitted that at any rate the cell operator had paid 63% as customs duty which in a way indicates that the supervision element on the equipment was embedded in the supply price itself and hence negligible. Reliance was also made on the Indian profit and loss account prepared by the assessee which was duly certified by the Chartered Accountants. It was submitted that these accounts wereIndiaspecific and the A.O. should have accepted the same especially when there is a presumption that certified accounts are true. Reliance was placed on the judgment of the Andhra Pradesh High Court in the case of CIT v. Navabharat Ferro Alloys Ltd. [2000] 244 ITR 261, which reconciled the earlier two judgments of the same Court in the case of Hindustan Shipyard Ltd. and Bharat Heavy Plate Vessels Ltd.'s case. It was finally argued that at any rate even if separate charges are assumed to have been levied for the activity of supervision, attribution of 46% to the activity is arbitrary and too high. Vendor Financin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the "operations of business". (g) The judgment of the Supreme Court in the case of State of UP v. Union of India [2003] 130 STC 1 is a very important decision which has to be kept in mind while deciding the issues. (h) According to him the decision in the case of Gannon Dunkerly is no longer a good law after the insertion of clause (29A) in Article 366 of the Constitution. 249. Mr. Sharma thereafter proceeded to address his arguments on the various issues that arose for consideration. He first submitted that Nokia India Pvt. Ltd. could not have had any expertise in installation of a GSM Cellular System because it was incorporated only on23-5-1995and immediately entered into the contract with the assessee for installation. The basic issue as to whether this was a works contract in reality and truth but disintegrated for purposes of income-tax has to be answered having the background of Nokia India Pvt. Ltd. in mind. Skycell Modi according to Mr. Sharma also fell clearly in this category, because the assessee first contracted with both for supply of equipment and installation thereof, but later on assigned the installation part of the contract to Nokia India Pvt. Ltd., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill remain in truth and fact the same as the original agreement. The suggestion was that the assignment has to be ignored or that it must be taken as if the assessee company, notwithstanding the assignment, did not alter the character of the original contract. It is like a sub-contract especially when it is assigned to a subsidiary or an affiliate of the Indian company which was a 100% subsidiary of the assessee company doing no other business. On this point Mr. Syali for the assessee intervened to clarify that Mr. Hannu Karavirta had signed only the Indian contract with BPL. Mr. Sharma further pointed out that Mr. Karavirta assigned the contract on 31-5-1995 and became the employee of the assignee company namely Nokia Telecom Pvt. Ltd. on the very next day, i.e., 1-6-1995 which clearly showed that the supply of the equipment and installation were all part of the same arrangement and cannot be segregated. 251.2. With regard to the contracts with BPL and Modi, the same arguments were advanced by Mr. Sharma. His broad submission was that all the contracts have to be construed in the same manner since they were all entered into at the same time. 252. Referring to the "Agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undertaken by the assessee under the supply contract itself. 254. The clauses in the services contract (installation) indicate that the purpose of this agreement is the same as is mentioned in Appendix IX in the Supply Contract. 255. Turning his attention to the arguments advanced with regard to the existence of a PE of the assessee inIndia, Mr. Sharma pointed out that the liaison office (LO) undertook the work of collecting all the cell operators at the same place to sign the contracts on the same day, to collect information, to negotiate etc. These facts indicated that the LO itself constituted a PE inIndia;. Referring to the contention of the assessee that the LO was not permitted to carry out any commercial activity in India, Mr. Sharma relied upon the order of the CIT(Appeals) and submitted that he has duly met with this argument of the assessee. Mr. Sharma also drew our attention to paras 4.18, 4.19, 6.1, 6.2 and 6.3 of the CIT(Appeals) order in support of his arguments about the existence of a PE inIndia. 256. Coming to the question of attribution of income to the PE, Mr. Sharma referred to Article 7.3 of the DTAA betweenIndiaandFinland. He submitted that under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned D.R. also submitted that there was no evidence for the incurring of the research and development costs and A G and in this behalf relied on the order of Mumbai Bench of the Tribunal in the case of Micoperi SPA, Milano v. Dy. CIT [2002] 82 ITD 369. 258. Mr. Syali, the learned counsel for the assessee, in his reply submitted as follows: He pointed out that his argument that the contracts of supply and installation are separate and independent based on the judgments of the Supreme Court in the case of Gannon Dunkerly and Guntur Tobacco have not been met by the Income-tax Department. According to him the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd.'s case does not overrule the earlier judgments in Gannon Dunkerly and Guntur Tobacco and that they still hold the field even after the 46th amendment to the Constitution of India. Elaborating this he drew our attention to paragraphs 12 to 17 of the judgment of the Supreme Court in the case of 20th Century Finance Corpn. Ltd. and pointed out that what was the subject-matter of consideration by the Supreme Court in this case was the expression "deemed sale" and that this concept of "deemed sale" has not been impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 of the Income-tax Rules as part thereof. The effect of this Article according to him, was that only those expenses that are allowed under the Income-tax Act will be allowed as deduction while attributing the income Rule 10 was not a provision for allowing any expenses and, therefore, this Rule was not applicable. With regard to the order of Delhi Bench of the Tribunal in the case of Iraqi Airways cited by the Department Mr. Syali submitted that in that case it was common ground between the parties that Rule 10 did apply and, therefore, the order cannot be construed as an authority supporting the contention of the Department that Rule 10 is applicable in all cases. 262. With reference to the arguments of Mr. Salil Gupta, the learned D.R. Mr. Syali pointed out from page 152 of Paper Book No. III that full details of the receivables were given to the Income-tax authorities and that the Assessing Officer could have added them and recast the profit and loss account and that without doing so, he was not justified in rejecting the loss declared therein. He drew our attention to the audit report where the auditors have said that cash system of accounting was followed in order to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . NOKIA (Assessment Years 1997-98 1998-99.) DECISION 266. There are four appeals in this case, two by the assessee and two by the Department. In fact they are all cross appeals. The grounds taken by the assessee as well as the Department are identical and even where there are minor differences, especially in ground No. 1 taken by the assessee in its appeals for both the years, they are not of any consequence. Assessee's appeals: 267. In the assessee's appeals, the following issues arise for consideration: (i) Is there a business connection inIndia? (ii) Is there a permanent establishment of the assessee inIndiain the form of its liaison office or in the form of its 100% subsidiary Nokia India Pvt. Ltd. (hereinafter known as NPL)? (iii) Is there a sale of hardware by the assessee inIndia? If so, how much profit can be attributed to such sale for income-tax purposes (iv) What is the treatment to be accorded for the payments for the supply of software, which the income-tax authorities have assessee as royalty? (v) Are the income-tax authorities right in assessing the interest income on account of vendor financing and delayed payments from the Indian Telecom Operato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to carry on any business activity for a foreign enterprise. Its activities are closely monitored by the Reserve Bank ofIndia. Reserve Bank ofIndiahas not found any violation of the rules under which permission has been granted to the LO. The LO no doubt has certain staff who have been paid salary and perquisites but there is no evidence to show that they were transacting any business inIndiaon behalf of the assessee. The LO has only carried out advertising activity which cannot by any means furnish business connection. The Income-tax authorities would appear to have also held that the LO carried out marketing activities for the assessee inIndiabut for this finding, there is no evidence and none of the contracts which have been brought on record indicate that the LO has carried out any marketing activities. In paragraph 5.2 of his order, the CIT (Appeals) has stated that the facts and circumstances suggest that the assessee carried out business in India through its LO which was not merely preparatory or incidental in nature and that even the designing of the GSM, which was the heart of the activity, was done by the LO. Though he has not stated as much in terms what he perhaps ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son Office inIndiasince the inception of the Liaison Office from1-2-1994. He signed the supply contract with Skycell on17-2-1995. He also signed the supply contract with Modi Telstra on23-3-1995. These were all signed before23-5-1995, the date on which Nokia Telecom (P.) Ltd. ("NTPL"), the 100% subsidiary of the assessee company, was incorporated. On31-5-1995, Karavirta signed the installation part of the contract with Skycell. However on the very same day he assigned these contracts to, NTPL and thereafter on the very next day (i.e.,1-6-1995) became an employee of NTPL. On1-1-1996he became the Managing Director of NTPL and thereafter signed the installation contract with the cellular operators on behalf of NTPL. The argument of Mr. G.C. Sharma based on these facts was that the contracts were assigned only to the assessee's 100% subsidiary which was actually under the control of the assessee and though legally speaking the assignment of the contract may amount to a novation in substance and truth it remains the same in its original form, especially when the person who signed the contract on behalf of the assessee company became the implementer of the installation contracts in his c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dealt with in paragraph 6.3 of the order of the CIT (Appeals), though in several earlier parts of the order, there is scattered reference to this aspect of the matter. However, the final decision of the CIT (Appeals) is only in paragraph 6.3 of his order. A reading of this paragraph shows clearly that what the CIT (Appeals) has in mind, as in the case of the Assessing Officer, is that NTPL, the Indian subsidiary, is the virtual projection of the assessee itself in India, though this idea may not have been properly articulated in the orders of the Income-tax authorities. The main point brought out by them is that in respect of the services rendered by NTPL to the assessee under the "marketing agreement", it was compensated on the basis of cost plus 5% which means that in addition to getting the expenses reimbursed, NTPL will get 5% more. It stands to reason that in respect of the marketing activity, NTPL has no scope for incurring any loss. Nevertheless, its accounts show a book loss of Rs. 10 crores (approximately) and even if the depreciation loss of Rs. 2 crores is ignored still the loss is around Rs. 8 crores. The question posed by the Income-tax authorities is: Where from thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore unable to find fault with the CIT (Appeals) for holding that NTPL, the 100% Indian subsidiary of the assessee, constituted the assessee's PE inIndia. (c) At this juncture it may be pointed out that in the case of Motorola, we have held that the Indian subsidiary of Motorola cannot be considered as a PE but that was because of Article 5.3(e) of the DTM with USA which provided that the term "Permanent Establishment" shall be deemed not to include the maintenance of a fixed place of business solely for the purpose of activities which have a preparatory or auxiliary character for the foreign enterprise. In the present case (Nokia), however the activities of the Indian subsidiary of Nokia, i.e., NTPL, are not of a preparatory or auxiliary character. Therefore, Article 5.4(e) of the DTAA betweenIndiaandFinland, which is similar to Article 5.3(e) of the DTAA withUSA, does not apply and we cannot hold that the NTPL cannot be deemed to be the PE of the assessee. The activities of NTPL are something more than preparatory or auxiliary in nature. They do not also fall under any of the other clauses (a) to (d) of Article 5.4 of the DTAA withFinland. We felt the need to explain this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt for the testing required under the contract when delivered. The assessee is also bound to promptly remedy all defects found in the hardware within the warranty period. This clause is not inconsistent with clause 6.1, which says that both the title and the risk passed outsideIndia. The mere fact that the assessee warranties that the hardware supplied by it will be new and unused and undertakes to remedy all defects pointed out during the warranty period does not mean that the risk continues to be with the assessee even after the hardware is delivered to the cellular operators inIndia. Clause 8.1 is only in the nature of a warranty. This shall be clear from clause 8.3 which says that if any defect is discovered in the hardware during the warranty period then "the purchaser shall arrange, at its own cost, the returned shipment of the defective part, sub-assembly or unit (if applicable) to facilitate in New Delhi therefore designated by the supplier ". This provision can only be consistent with the position that the property and the risk in the goods have passed outsideIndiaas otherwise Tata, the purchaser, cannot be compelled to bear the expenses of returning the defective part. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was installed and passed the acceptance test. This argument was also taken in support of the contention that the supply contract and the installation together formed a works contract. Neither of these contentions can be accepted. As regards the contention that the contracts constitute, a works contract, we have elaborately dealt with the same while disposing of the appeals in the case of Ericsson and, therefore, there is no need to repeat them here. So far as the argument that the risk and title passed to Tata only after the acceptance test has been satisfactorily carried out is concerned, we are unable to accept the same merely on the basis of the statement made in Appendix 9 to the contract under the heading "Nokia's overall responsibilities". A careful reading of page 1183 shows that Nokia, the assessee, is bound to provide the installation tools and test equipment for the testing teams as agreed in the contract and would also be responsible for the documentation for installation of sites as agreed upon and for the installation supervision. This is obviously because Nokia, having supplied the GSM equipment, would be in a better position and in fact would be more interested in en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the equipment and/or ancillary equipment at the site concerned does not satisfactorily pass the tests, Nokia shall rectify the defects and the procedure referred to above in this Article shall be repeated as many times as is necessary, in order for testing and acceptance to be satisfactorily completed". We may clarify that Nokia, referred to in this clause, is the installer which is NTPL and not the assessee company. The significance of this clause is that it is the installer, i.e., NTPL which shall continue to remain responsible for removing the defects in the equipment till the acceptance test is satisfactorily conducted. This clearly excludes the assessee company from any kind of responsibility for malfunctioning or non-functioning of the GSM equipment or for not satisfactorily passing the acceptance test. The conclusion drawn to the contrary by the Income-tax authorities is untenable. 280. We have perused the assessment order for the assessment years 1997-98 and 1998-99. The A.O. has referred only to the supply contract entered into by the assessee with Tata and BPL. No other contract has been adverted to in any detail. We have found that there is no material difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue is discussed in paragraph 9 of the order of the CIT (A) for the assessment year 1997-98. The brief facts are that the assessee provided credit facilities to the Indian cell operators on which interest @ 18% was chargeable as per the agreement. It appears that the facts in this connection were not brought out clearly before the A.O. despite being called upon and, therefore, the A.O., finding that the assessee had not declared any interest in the return, was forced to estimate the interest at Rs. 5 crores for each of the two assessment years. Before the CIT (Appeals), the assessee contended that though there was provision in the agreement to charge interest from the cell operators, it was never activated or acted upon by the parties, that no entries were passed in the assessee's books of account for the interest, that no invoices for interest were raised against the cell operators and that in these circumstances, the interest cannot be said to have accrued at all and that the A.O. was not justified in estimating and adding the notional interest. Written submissions were also filed before the CIT (Appeals) articulating the above points. The audited statements placed at page 152 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are not carried out in India, the income of the business deemed under this clause to accrue of arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If we turn to Article 7 of the DTAA betweenIndiaandFinland, we find that Article 7.1 says that the profits of an enterprise of a contracting state shall be taxable only in that State, unless the enterprise carries on business in the other contracting State through a PE situated therein. If the enterprise carries on business in the other State through a PE, the profits of the enterprise may be taxed by the State in which the PE is situated, but only so much of the profits as are attributable to the PE. Article 7.2 says that the profits attributable to the PE are those which the PE is expected to make as if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE. Article 7.3 says that in determining the profits of a PE all expenses incurred for the purposes of the PE, including executive and general administrative expenses are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this profit cannot be attributed to the Indian operations as the activities relating to manufacture and development of the products were undertaken outside India, he has ultimately held that the profits attributable to operations in India should be taken at 5% of the sales to the Indian parties. For the assessment year 1998-99, he has taken 7.9% of the sale value considering the fact the net profit on Indian sales was 16.1% as against 10.8% in the preceding year. 286. The Department in its appeals has taken the ground that the CIT (Appeals) was not justified in reducing the income from 40% of the value of the hardware to 5% of the sales to Indian parties. Actually, for the assessment year 1998-99, the ground should be that the CIT (Appeals) was not justified in reducing the income to 7.9%. It appears to be a mistake in drafting the ground No. 1. On the other hand the assessee in its appeals has taken up several contentions including the contention that no income can be attributed to the PE at all primarily because whatever expenses that are incurred by it are compensated by the assessee on cost plus basis, that if the expenditure incurred by the PE is taken into account then ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve more effort on the part of the PE and the signing of the contracts is only the fructification of those efforts. Obviously, therefore, the income attributable to the negotiations part should be more and in addition to the income attributable to the signing of the contracts. Some income has to be attributed to the net work planning also. Taking all these into consideration, we consider it fair and reasonable to attribute 20% of the net profit in respect of the Indian sales as the income attributable to the PE. The following steps are involved in computing the income attributable to the PE: First the global sales and the global net profit have to be ascertained. From the accounts presented before us as well as before the Income-tax authorities, the global net profit rate has been ascertained at 10.8% and 16.1 % by the CIT (Appeals), to which no objection has been taken by either side. This percentage has to be applied to the Indian sales and by Indian sales, we mean the total contract price for the equipment as a whole and not the bifurcated price which the Assessing Officer has referred to in the assessment order. This will also be consistent with our view that the software a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The existence of the PE inIndiais denied. Under Article 7, business profits can be taxed inIndiaonly if there is a PE inIndia. The taxability of the payment for the software is also denied under the terms of the DTAA. Thus, in our opinion, there is no admission in the MAP which would render the appellate proceedings before us academic. Therefore, we hold that the fact that the assessee (Ericsson) has adopted the MAP procedure does not come in the way of the Tribunal disposing of the appeal. It needs to be stated that our view is based on the fact that the assessee (Ericsson) has not admitted in MAP that it is taxable inIndiaand its stand before us in the appeal is in conformity with its stand under the MAP. We, however, clarify that we have not examined the question as to what would happen in a case where the assessee admits its taxability under the MAP but wishes to take a completely contradictory stand in the appeal before the Tribunal. The question whether in such a case an assessee can be permitted to pursue its appeal before the Tribunal is a moot question which we leave open, to be decided in an appropriate: case. We may add that in the case of Ericsson, after Mr. Dastur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
