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TMI Blog2011 (1) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2002-03 on 1-10-2003, admitting 'NIL' income and also claimed TDS refund of Rs. 2,69,99,456. Initially, the return was processed under section 143(1) on 4-11-2003 accepting the NIL income filed, but later, the case was scrutinized under section 143(3) vide which positive income was computed and interest under section 234A and 234B of the Act was also charged. The assessee-company is engaged in providing international connectivity services largely in the Asia Pacific Region. The Indian Telecom Regulations allow only licenced service provider to provide International Long Distance Telecommunication Services (ILDTS) in India. The assessee-company, is not a licenced service provider in India, but provides only International Private Lease Circuit (IPLC). The Indian Half Circuit services are provided to the customer by the local licence provider, namely, Videsh Sanchar Nigam Ltd. (VSNL). A customer interested in taking leased line between his office in India and any overseas location, enters into two separate contracts for the provision of connectivity services - firstly with MCI Singapore for provision of international connectivity; and secondly, with VSNL for Indian Half Circuit Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MCI India by MCI Singapore, so MCI India is not a PE of MCI Singapore which at best can only be referred to as an 'Agency-PE'. In the alternative, the case of the assessee is that even if MCI India is taken to be dependent agent of MCI Singapore, it does not constitute a PE of MCI Singapore in India since it does not have the authority to negotiate or conclude contracts nor it secure orders on behalf of MCI Singapore in India. MCI India provides marketing support to MCI Singapore for which it is remunerated at an arm's length basis. Accordingly, the case of the assessee is that since, MCI Singapore does not have a PE in India, no income can be attributed nor taxed in India and, hence, payments received by MCI Singapore for international connectivity services are not taxable in India. To explain its case properly, the assessee also filed copies of the following documents before the Assessing Officer : (a)Copy of the agreement entered into between VSNL and MCI Worldcom Asia (Pte) Ltd. for the International Private Leased Circuit. (b)Copies of the agreements entered into between MCI Worldcom Asia (Pte) Ltd. and their various customers in India. (c)Copy of the agreement entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with clause 4"). 11. On a perusal of the Master Services Agreement with MCI, in the Definitions to Terms and Conditions to the Master Services Agreement it is stated that "Service Equipment" shall mean the equipment, systems, cabling and facilities provided by MCI Worldcom or an MCI Worldcom affiliate in order to make available the service to the customer. Service Equipment shall not include the network or any equipment which is the subject of a separate supply contract between MCI Worldcom and customer. In clause 12 relating to customer obligations, it is mentioned in sub-clause 12.8, relating to service equipment that the customer shall be required to deliver, install and keep installed at the customer site, the service equipment. In the clause 12.9.1, it is mentioned that the customer should house the service equipment required to be housed at the customer site in accordance with Worldcom's reasonable instructions as may be given from time to time. In clause 12.9.2, it is mentioned that the customer shall not move, modify, relocate or in any way interfere with the service equipment or network. In sub-clause 12.9.3, it is mentioned that the customer shall not cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed in the succeeding paragraphs. uThe ITAT in the case of Wipro Ltd. v. Income-tax Officer (80 TTJ 191) has not considered the applicability of royalty for use of equipment under sub-section 4(a) to Explanation 2 of section 9(1)(vi) of the Income-tax Act. uIn the case of Skycell Communications Ltd. v. DCIT (251 ITR 53 ), the Madras High Court has held that payment made to cellular mobile operators by the subscribers would not constitute fees for technical service. This is distinguishable from the issue under discussion for the reason that the Skycell case relates to collection of a fee for the use of a standard facility provided to an average house-holder or consumer, whereas in the present case the issue is Royalties for the use of equipment, wherein there is a one to one agreement between the companies. uThe case of American Express Inc. (Ruling of AAR); Master Card assessment year 1996-97 would be relevant in this regard. In this case the Indian company made payments to the USA company for use of its computer set up in Hongkong and USA, which services were obtained through lease lines taken from VSNL. After considering section 9 of the Act and the provisions of DTAA [Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand for a payment of Rs. 10,000 (c )The payment of Rs. 10,000 is only a token amount and not the actual consideration of the equipment. 18. Hence, it is seen that VSNL is only the custodian of the equipment. Also, MCI holds the ownership of the software as mentioned in the agreement. As discussed above, the assessee has a business connection in India on account of the source of income in India, through assets and services provided (through associated concerns) in India. 19. However, under Article 7(7) of DTAA with Singapore it is stated that "Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article". These payments are in the nature of royalty for the use of equipments (nodal equipment in India, service equipment in USA, etc.) and related services. This income by way of royalty is taxable under section 9(1)(vi) of the Income-tax Act. Under sub-clauses (iva) and (vi) of Explanation 2 to section 9(1)(vi) of the Income-tax Act, the consideration for use or right to use any industrial, commercial or scientific equipment and the rendering o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 68,11,987 and interest under section 234B of the Act amounting to Rs. 1,82,78,834. 2.2 That on the facts and circumstances of the case and in law, the learned CIT-A has erred in summarily rejecting the submissions filed by the appellant before him, holding that no detailed arguments were presented by the appellant regarding the levy of interest under section 234A and 234B of the Act. The appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal." 7. From both the sides, oral submissions were made, written submissions were filed and voluminous paper books were also filed in support of their respective claims. We have carefully gone through the entire record made available before us, including the paper books of the parties, written submissions and counter submissions submitted before us. Before we proceed to decide the real controversial issue, we deem it desirable to understand the actual nature and modus of working/service being provided by the assessee in this case, in which a non-resident company and a local service provider are involved. We have to examine if MCI Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty income received from different customers in India, the Assessing Officer has given detailed reasons in his order. Likewise, the ld. CIT(A) has also found these amounts received by the non-resident company for providing connectivity through dedicated bandwidth to its Indian customers holding that the amounts paid were royalty for use of the assessee's 'equipment' or for use of the 'process'. The Assessing Officer has reason to tax this income on the ground that the assessee has an enduring business connection within the meaning of section 9(1) of the Act, as a result of which the source of income being in India and location of assets and software also being in India and the services are also rendered in India. The Assessing Officer has mentioned that in any case, this amount becomes taxable because of the following : (i)The non-resident assessee, M/s. VSNL, Mumbai, had entered into an agreement in the business of providing IPLC and related services to various customers. (ii)The appellant/assessee had located and installed in the VSNL premises equipments and software required for providing framed relay services viz - Ascend B-STD X 9000 OSS-Network Management Lucent AX-II" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issues, losses, amplifier gain equalization; power equalization of channels, and crosstalk were all seen to be major issues. Most of the testbeds could not successfully transmit data all optically through more than a few nodes. However, they give a good indication of the types of networks that will become commercially feasible in the next few years." 1. The Big Picture Since the beginning of the 21st century, there has been a burgeoning demand for communications services. From the ubiquitous mobile phone, providing voice, images, messaging, and more, to the Internet and the World Wide Web, offering bandwidth-hungry applications such as interactive games, music, and video file sharing, the public's appetite for information continues to grow at an ever-increasing pace. Underneath all of this, essentially unseen by the users, is the optical fiberbased global communications infrastructure - the foundation of the information superhighway. That infrastructure contains the multi-wavelength optical networks that are the theme of this book. Our purpose is to present a general framework for understanding, analyzing, and designing these networks. It is applicable to current network archi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of optical fiber transmission that by introducing Wavelength Division Multiplexing (WDM) on existing fibers, the capacity of a fiber link could be increased many fold at minimum cost. However, it was only since the early 2000s that the optical switching technology necessary to convert isolated fiber transmission links to optical networks matured sufficiently to permit the commercial deployment of these networks. In the mid-1990s, the optical network (as opposed to optical fiber transmission alone) was still a "blue sky" concept. New optical and photonic devices were being developed and incorporated into experimental networks. But full-fledged multiwavelength networks integrating optical transmission, switching, and user access were still in the research and development stage. At that time, the technology push for networking was out in front, but demand for the seemingly unlimited capacity of these networks was essentially non-existent. As this is being written, the promise of optical networking is finally being fulfilled. The demand pull for these networks has materialized. As low-cost broadband services are made available to the general public, demand for Internet-based applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asures at best. Direct access to the fiber network by the end user [i.e., Fiber To The Home (FTTH) or business user] is the ultimate way of removing the bottleneck so that the network remains effective as demand for bandwidth grows. Although FTTH was deployed many years ago in a few demonstration projects, it did not take hold for several reasons, including cost and the absence of services of interest to the customers. Today that has changed because of the proliferation of broadband Internet services. Deployment of glass is now moving from the network core through fiber access networks to the end users. This will undoubtedly stimulate interest in new broadband services that take advantage of high-speed access and in turn produce demand for more bandwidth. At this writing, most of the world's installed fiber capacity is underutilized - arguably due to the last-mile bottleneck. That should change rapidly as progress in the removal of the bottleneck results in a quantum jump in network traffic, making high-performance optical networks indispensable. Higher level issues such as deregulation, new ideas for improving the economics of networking, and standardization of control and manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roof" so as to be ready for the next unforeseen developments. 1.2 Objectives of an Optical Network Architecture Today's and tomorrow's optical networks must provide the capacity, connectivity, and intelligence necessary to link together a global community of information providers and consumers. A well-designed network performs this function efficiently and reliably. To facilitate a systematic study of networks that achieve this goal, it is useful to formulate a generic model in the form of a Multi Wavelength Network Architecture (MWNA). As background for the MWNA, we briefly review the current network structures and the services they support. Until the end of the second millennium, the world of networking consisted of two separate spheres : the traditional telephone networks mainly devoted to providing voice services (operated in a circuit-switched mode) and data networks (operated in a packet-switched mode) for communica- tion between computers. Each type of network was specially engineered and optimized for its own type of service. Circuit switching was the preferred approach to voice transmission, because the voice signal was transmitted as a continuous stream, whereas packet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a vast globally distributed user community. In terms of connectivity, these types of services push networking to its ultimate limits; any end user wants rapid connectivity to anyone or anything in the network. However, in terms of performance, they are undemanding - they can tolerate errors, delays, and occasional downtimes due to congestion, programming bugs, and equipment failure. Total costs may be high, but they are spread over an enormous user base resulting in a very low cost per user. In contrast, consider a different type of application, the Virtual Private Network (VPN). This is a subnet carved out of a larger network by a telecommunications carrier and put at the disposal of a single enterprise, which typically controls and manages it. Consequently, it has a much smaller user group with more intense utilization per user, far fewer active connections, and tighter control of network performance, including security and reliability. Customer costs per user will be higher, but this is offset by higher performance and more responsiveness to the needs of the customer. Another example is telemedicine, which requires high-quality communication (e.g., high fidelity medical imag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relations between the neighboring layers. An illustration is the multilayered view shown in Figure 1.1. The architecture is composed of an underlying optical infrastructure, the physical layer - which provides basic communication services to a number of independent Logical Networks (LNs) residing in the logical layer. Each LN organizes the raw capacity offered by the physical layer, adapting it to the needs of the clients it serves, shown in the services layer of the figure. For example, the SONET network shown in Figure 1.1 uses optical wavelength channels provided by the physical layer, transmits optical signals on them, and carries multiplexed communication channels on those signals. The SONET channels can be tailored to support a wide variety of services; two services shown in the figure are Plain Old Telephone Service (POTS) and a VPN. In our example, the SONET layer also supports an ATM layer that in turn supports a client IP layer providing Internet access services to end users. Another independent IP network shown in Figure 1.1 is supported directly by the physical layer, providing a telemedicine service, VoIP, and a music/video file-sharing service. In addition, the physic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witching and routing functions that control the optical signal paths (also called lightpaths), configuring them to create desired source-destination connections. The stations and nodes contain the optoelectronic and photonic components of the network: lasers, detectors, couplers, filters, optical switches, amplifiers, and so on. These components work together with the fibers to produce the required optical signal connectivity. Although the underlying optoelectronic and photonic technologies have matured considerably since the mid 1990s, they are not as well developed as their electronic counterparts. Thus, electronics (in the logical layer) is currently an equal partner with photonics (in the physical layer). ****** The line between the optical and electronic parts of the network has become fuzzy as technology has advanced, but at this point in our discussion we retain the simplified view that the physical layer is transparent and optical, whereas the logical layers are electronic and 'opaque'. The electronic switching node plays the same role in the logical layer as ONNs play in the physical layer. Our generic term for an electronic switching node (each hexagon in Figure 1.2) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scalability -Modularity -Survivability (fault tolerance) uControl and management -Efficient, rapid, automated connection provisioning, and reconfiguration -Built-in intelligence in the network elements for monitoring and control -Efficient and rapid automatic fault identification and recovery -An integrated network management system to monitor and coordinate all network layers As we look at existing and proposed network architectures, it is important to keep these goals in mind. 1.3 Optics versus Electronics : The case for Transparent Multiwavelength Networks There are certain functions that come naturally to each technology. Referring to the somewhat idealized view of a network in Figure 1.2 based on the assumption of a purely optical physical layer, there is a clean separation between optical/photonic technology, on the one hand, and electronic technology, on the other. The NASs represent the optoelectronic interface (denoted by the boundary labeled e/o) between the electronic domain (the equipment outside the purely optical portion of the network) and the optical domain, sometimes called the optical ether. This interface is the point of demarcation between the physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, regeneration, reading, and modifying the information in the signal, buffering, and logic functions (e.g., packet routing based on header information). Although many non-linear functions can be performed in the optical domain with present-day technology, the current state of the art for these nonlinear devices is not nearly as advanced as it is for linear components. For these reasons, we frequently use the terms transparent optical network and purely optical network interchangeably in this book. Nonlinearities make the signal path opaque rather than transparent. Some of the advantages of keeping nonlinear operations out of the signal path are (1) the end-to- end optical path behaves as a literally transparent "clear channel" so that there is nothing in the signal path to limit the throughput of the fibers (a transparent channel behaves very much like an ideal communication channel with almost no noise and a very large bandwidt, (2) the architecture of the optical network nodes can be very simple because they have essentially no signal processing to do (optical nodes simplicity also means simplicity of network control and management), and (3) system upgrades involving changes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology it must be understood that it is a fast-moving target. Thus, the state of the art is rapidly evolving in the direction of smarter optics and (somewhat) faster electronics. One consequence of smarter optics is that nonlinear operations can be introduced into a purely optical network using optical processing. For example, optical packet switching can be realized either through purely optical processing or a combination of electronics for header processing and optics for switching, resulting in an opaque optical network capable of very high speed packetswitched operation (see Chapter 10). Another example of smarter optics is the use of optical processing for signal regeneration and wavelength conversion within an otherwise linear signal path (see Chapter 4). Faster electronics is a more questionable issue, because as we push the electronic speed limits, costs rise rapidly. 1.4 Optics and Electronics: The case for multilayered Networks Because of the size and complexity of the networks we are considering, and because of the fact that lightwave technology alone cannot satisfy our networking objectives, we now return to the multilayered model of Figure 1.1 with a more detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a format acceptable and cost-effective for the end users and/or client layer it serves. For example, the layer in Figure 1.1 providing IP over WDM makes use of wavelength channels offered to it by Logical Layer LL1 LL2 LL3 Physical Layer Optical Layer Fiber Layer Figure 1.3 Layered view of an optical network. The physical layer and "packages" the bandwidth so as to support the flow of IP packets among its end users. Sophisticated network users requiring high bandwidth and the flexibility of a clear channel can dispense with the services of an LN to obtain direct access to demand-assigned wavelength channels as shown in the figure, without the intervention of an electronic middleman. Returning to the physical picture, Figure 1.2 illustrates in more detail how the end users interface to the network through various layers of logical (electronic) switching equipment, and then through the NASs to the physical layer. For example, a user of Internet access services is shown accessing the network via an IP router on top of an ATM switch on top of a SONET DCS, which uses the services of the transparent physical layer. At the other extreme, a supercomputer is shown accessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in Figures 1.1 and 1.3. Dedicated connections supporting the various LN's are normally held in static configurations for durations of hours, days, or more. Demand-assigned connections are held typically for minutes or hours. Thus, the number of circuits being set up and taken down per unit time is relatively small. This type of operation requires little processing and provides a high aggregate throughput. Conversely, electronics is employed in situations in which there are many information units (e.g., individual packets or cells) being switched per unit time. Because the units are typically small (in number of bits) and because each unit is processed individually, this leads to a heavy processing load, with a relatively low throughput limited by the processing power of the switch. Wide Area Networks (WANs) must handle both large and small information units, hence, the need for marrying both electronic and optical switching technologies. The hybrid approach exploits the unique capabilities of each while circumventing their limitations. To illustrate the importance of combining optical and electronic technology let us explore the demands placed on large networks. Broadband WANs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be implemented with electronic rather than optical switches at the network nodes, as shown in Figure 1.4(b), where the ONNs have been replaced by IP routers. This reduces the physical layer to a set of isolated point-to-point transmission links terminating on the electronic routers. Electronics can easily support the required connectivity via virtual connections. However, the electronic processing bottleneck at the switches makes it difficult and expensive to sustain the required multiterabit throughput on the backbone. Because optical switching is still in the early stages of penetrating large networks, current architectures are tilted more to the electronic side (with multiple stacked logicallayers) than the optical side. However, pressures of increasing demand, performance, cost-effectiveness, and fault tolerance are moving networks toward hybrid configurations of the type shown in Figure 1.2. In a hybrid architecture both high connectivity and high throughput are achieved easily and efficiently. For example, an LN composed of IP routers provides the necessary connectivity through sorting and routing packets at each LSN (see Figure 1.4( c)). The physical layer supports the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Figure 1.5. The mesh network in the center is the core long-haul network, which joins the MANs in the form of rings. End users connect to the MAN through access networks joined to the MAN at gateways indicated by the shaded circles in the figure. These access networks might be in optical form (e.g., Passive Optical Networks (PONs)) or electrical form (e.g., traditional LANs or electronic switches). Their purpose is to aggregate traffic from individual users for more efficient and cost-effective transmission on the network. ****** A characteristic of the hierarchical structure is that as one moves closer to the end user, the number of entities attached to the network grows exponentially. Referring to Figure 1.5, there are many MANs attached to the core, many access networks attached to each MAN, and many end users attached to each access network. Conversely, the amount of traffic originating from each entity declines exponentially as one moves closer to the end user. Because there are so many end users with modest individual traffic demands, the equipment located close to the end users in the access networks must be inexpensive and simple but does not need to be high capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be handled more or less autonomously, dealing only with the relatively small number of "local" entities without an overall view of the complete network. Another way of seeing this is in terms of the multilayered view in Figure 1.1. In a high-speed core of an optical network, control activity is largely confined to high-speed highly multiplexed connections in the physical layer. In moving to the end users, the control functions shift to the higher logical layers, but because the view is local, the total number of entities being controlled is still relatively small. 1.6 A Little History The idea of a high-speed optical transmission system (in free space) was considered as early as 1958, when the laser was conceived (Schawlow + 58), and guided wave optical transmission was exhibited in the laboratory in the mid-1960s (Kao+66). However, practical optical transmission systems did not become possible until the production of the first low-loss fibers and the invention of the semiconductor laser diode, both around 1970. By refining the optical transceivers and reducing fiber loss, the effectiveness of unamplified optical transmission systems (measured in bitrate- distance product) gre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e developments discussed so far were carried out within the traditional voice communications carrier community. However, the early data networks also influenced the structure of today's optical networks. The first data networks were developed in the 1970s mainly for business users, utilizing packet switches designed by computer equipment manufacturers to work together in a closed network environment employing proprietary protocols. Examples were IBM's SNA (Systems Network Architecture) and Digital Equipment's DEC-NET. Typical applications were airline reservation systems and timeshared computing. Governmental organizations joined with ARPANet in the United States, Datapac in Canada, and Cyclades and Transpac in France. Although Datapac and Transpac were public data networks, ARPANet and Cyclades were experimental and contained the precursors of today's dominant global packet-switched network - the Internet. Today's Internet routing equipment and IP, the Internet Protocol, evolved from the hardware and software developed in the 1970s for ARPANet, which was a pioneering communication network sponsored by the Advanced Research Projects Agency (ARPA) of the U.S. government. ARPANet was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single optical receiver capable of being tuned to the wavelength of any transmitter. Signals from all transmitting stations are combined in a centrally located optical star coupler, a passive device that broadcasts an attenuated version of the combined signals back to each receiver. By selecting the appropriate wavelength, each receiver can accept the signal injected by the corresponding transmitter, thereby creating a transparent connection from the transmitter to that receiver. Probably the earliest prototype of a broadcast-and-select network was LAMBDANET (Goodman+86, Goodman+87). Broadcast-and-select networks do not scale well to large sizes primarily because they rely on rapid tuning of optical transceivers over a wide range of wavelengths, they waste optical power, and, most important, they make poor use of the optical spectrum. More general mesh topologies were soon proposed to eliminate the constraints of broadcast-and select networks. In these networks, alternate paths together with wavelength routing produce possibilities for reuse of the optical spectrum (Hill88) as well as recovery from failures. At about the same time that wavelength routing was proposed, the multiho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are basic components of our current network infrastructure. Undoubtedly the rapid advances in the enabling technology for optical networks, and its accelerated commercialization at the end of the 1990s, can be largely attributed to the massive infusion of capital to the various players during the "technology bubble" at that time. This produced a host of new start-ups and spin-offs as well as expansions of ongoing activities in the large equipment manufacturers. Although many of the companies that originated the new products have disappeared, the technological progress remains, and will serve as a foundation for the networks of the future. The period of economic consolidation following the bursting of the bubble brought with it a more down-to-earth view of networking, essentially focusing on the areas of prime concern to the network operator and the customer : costeffectiveness, reliability, fault recovery, and manageability. Focus on costs has led to a trend towards eliminating superfluous electronic and electro-optic components in networks (e.g., the use of IP over WDM without intervening logical layers) and improving operating efficiencies through enhanced traffic grooming and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the network has no flexibility in responding to changing conditions. Conversely, a high degree of node and station controllability under the supervision of a network control and management system improves the efficiency of resource utilization, allows the network to maintain satisfactory performance in the face of fluctuating demand, and enables it to reconfigure itself in case of component failures. Of course, controllability implies the existence of suitable control algorithms to coordinate the functions of the various network entities. Three basic features - topology, functionality, and control - interact closely to influence overall network performance. As might be expected, there are many opportunities for cost-performance trade-offs. Thus, high functionality in the nodes and access stations improves performance, but this comes at a price. The same can be said of the richness of the physical topology. Also, to compensate for the limitations of the network resources, one can attempt to optimize performance through sophisticated control algorithms. However, optimality generally comes at the price of controller complexity. Thus, the cost-performance trade-offs involve complex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed first, starting from the simplest (static) networks and then considering the two controllable classes : wavelength-routed networks and linear lightwave networks. The former class supports point-to-point connections, whereas the latter supports multipoint connections, representing a more general view of transparent optical networks and their functionality. Because the physical layer alone is generally not sufficient to serve the needs of network users, the chapter concludes with a discussion of logically routed networks - the multilayered networks of Figure 1.1, consisting of electronic overlays on an optical infrastructure. Chapters 2 and 3 are largely qualitative and serve as introductions and "pointers" to material explored quantitatively in later chapters. The rest of the book may be read more selectively. It is linked to the earlier material, as shown in Figure 1-6- For those with only a limited understanding of the physical side of networking, Chapter 4 provides a concise treatment of physical principles and device technology. It is not intended to be all-encompassing, because other works are solely devoted to these topics; for example, see references (Agrawal02, Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd all of Chapters 9 and 11 provide examples of contemporary technology, network design, and network operation, as well as the trade-offs between optical and non-optical networking solutions. These will be of particular interest to those involved in near-term network deployment. However, this is the most "perishable" material in the book. For example, Chapter 9 is important for an understanding of current standardization efforts in network control. However, these are continuing to evolve as this is being written, so that techniques of optical network control and management can be expected to change and progress in future network deployments. Some of the more advanced and speculative sections in the book may be skipped initially by readers learning about optical networks for the first time. In Chapter 5, Section 5-2-3, Code Division Multiple Access, and parts of Sections 5.5 and 5.6, which deal with demand-assigned connections and packet switching in the optical layer, can be bypassed by those new to the field. The same is true for parts of Chapter 6, including the material on ring decomposition in section 6.3.5, optimization in section 6.3.7, and some of the more specialized topic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r signal processing operations, so that the linkage between "transparent" (i.e., linear) and "purely optical" is becoming tenuous. (6)Transparency implies that signals with any type of modulation schemes (analog or digital), any bit rate, any type of format, and using any kind of protocol can be superimposed and transmitted without interfering with one another and without their information being modified within the network. Opaque networks do not have these properties. (7)A similar, but not as severe, throughput limitation applies to "opaque" optical switches that are often used in the physical layer to replace purely optical ONNs. An opaque switch converts the optical signals to electronic form for purposes of switching, and in the process it performs signal regeneration, wavelength conversion, and signal monitoring as well. Although this makes an opaque switch much more versatile than a transparent optical ONN, it also produces an electronic bottleneck within the node. (8)One of the reasons for the use of stacked LNs such as ATM and SONET underneath an IP logical network is that the lower logical layers can be used for offering a reconfigurable logical topology to the IP netwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or for the use of or right to use a process can be characterized as 'royalty'. We are in agreement with the contention of the ld. DR that the customer acquires significant economic or possessory interest in the equipment of the assessee to the extent of bandwidth hired by the customer. This capacity is made available on a dedicated basis to the customer for the entire contract period, usually a year. Thus, physical possession is not a must, even according to TAG of OECD. Even if the bandwidth is not used, the customer has to pay the committed charges. Thus, the assessee does not bear any risk of diminution in receipts or increase in expenditure if the customer does not make the use of the capacity. According to the assessee, the contract between the assessee and its customers is for the provision of services and not for providing any right in any equipment and/or network used by the assessee for providing telecom services. The customer does not ask for or seek its rights to ask for or seek any specific equipment/network; rather the customer has no knowledge of the usage of equipment/network of other operators by the assessee for providing service. The customer has neither knowle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also not been fulfilled. 13. We have cogitated the entire records in depth. We do not find any merit in the submission put forth on behalf of the assessee. The ld. AR has not been able to assail the finding of the Assessing Officer that the customer acquires significant economic to the extent of bandwidth hired by the customer. The capacity is made available on a dedicated basis to the customer for the entire contract period, usually for a year. The physical possessory interest in the equipment is not a must. Even according to TAG or OECD, the customer has to pay a committed charge whether bandwidth is used or not. The agreement may be only for the provision of services but in effect, it grants right to the extent stated above in the network of the assessee. The decisions relied upon by the Department viz., in the case of Frontline Soft Ltd. & Call World Technologies Ltd. v. Dy. CIT [IT Appeal Nos. 1080 & 1081 (Hyd.) of 2003, dated 3-8-2007] and that of AAR in the case of Cargo Community Network (P.) Ltd. In re [2007] 289 ITR 355 1 (AAR - New Delhi), are exactly on the point and are in favour of the revenue. The amount received by the assessee from the Indian customers is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the physical possession of the property or controls or has a significant economic possessory interest in it. u The provider does not bear any risk of substantially diminished receipts or increased expenditure in case of non-performance or does not use the property concurrently to provide significant services to the entities unrelated to the services recipients; and u The total payment does not substantially exceed the rental value of the equipment for the contract period. 14. In determining the nature of the payment as 'Royalty', all the relevant factors having a bearing on the substance of the transaction should be taken into account. In this case, the customer acquires significant, economic or possessory interest in the equipment of the assessee, to the extent of bandwidth hired by the customer. The capacity is made available on a dedicated basis to the customer for the entire contract period, usually a year. Therefore, as stated above, the assessee does not bear any risk of diminution in receipts or increase in expenditure, if the customer does not make use of the capacity. It is significant to mention that the payments made for hiring bandwidth by the customer would corres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and operated by telecasting companies. The use of process, according to agreement, was provided by the satellite companies to the telecasting companies whereby the telecasting companies are enabled to telecast their programmes by uplinking and downlinking the same with the help of that process. Time of telecast and the nature of programme, all depends upon the telecasting companies and, thus they are using that process. The consideration paid by telecasting companies to satellite companies is for the purpose of providing use and right to use of the process and, thus, it is royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi). It is also a royalty within the meaning of clause (vi) of Explanation 2 to section 9(1)(vi)." 15. We are in agreement with the ld. CIT(A) when he observes that even if the payments are treated as not relating to the use of equipment, they should be considered as payments for the use of the 'process'. It has already been explained that on account of the long distance through which the signals are carried by the undersea cables, they become feeble after a distance and have to be amplified at periodical intervals or points of distance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess services. The term "business" is to be noticed. Shared Internet services originated to make broadband affordable for residential and home office users. Medium to larger size business have always used dedicated connections for their voice and data circuits. In the bigger picture, the entire internet is a shared bandwidth resource. With a dedicated connection, one's bandwidth is set aside by the service provider and always available for one's use. Recently, the ITAT, Delhi Bench in the case of eFunds Corpn. v. Asstt. DIT [2010] 42 SOT 165 , has held as under : "Income Deemed to accrue or arise in India Assessment years 2000-01 to 2005-06 - Whether in order to constitute PE, place of business need not be owned, rented or otherwise under possession or control of enterprise; only requirement is that place should be fixed in context of nature of business being carried out and also no time period test is prescribed for permanence as permanence of establishment has to be determined in context of nature of business being carried on - Held, yes - eFunds Corporation i.e., assessee, was a company incorporated under Iaws of United States and was tax resident of USA - It had a wholly owne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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