TMI Blog2015 (7) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the sole issue/ground raised by the Revenue in both the appeals being devoid of merits is dismissed. - Decided in favour of assessee. - ITA No.2629 & 2630/Del /2013 - - - Dated:- 22-7-2015 - Shri S.V. Mehrotra and Shri Chandra Mohan Garg, JJ. For the Petitioner : Sri B.R.R. Kumar, Sr. DR For the Respondent : Sri Alok Vasant, AR ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER 1. These appeals have been filed by the Revenue against the order of the CIT(A)-XXIX, New Delhi dated 11.02.2013 in Appeal No. 06 07/2011-12 for AYs. 2009-10 and 2010-11 respectively. 2. Although the Revenue department has taken as many as 14 grounds in this appeal, but the sole issue for adjudication is that whether the payment made by the assessee company for purchase of software amounts to royalty and hence the same subject to TDS u/s 195 of the Income Tax Act, 1961 (for short the Act ). 3. Briefly stated the facts giving rise to this appeal are that the assessee is engaged in the business of providing cellular mobile telephone and wireless services and other related services in various telecom circles of India. The assessee company was desirous of procuring a CDMA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. Now, the Revenue Department is appearing before this Tribunal in these second appeals with the main issue as mentioned hereinabove. 6. We have heard arguments on both the sides and carefully perused the relevant material placed on record. The Ld. Departmental Representative (DR) supporting the impugned order of the AO was correct in passing the order dated 31.03.2011 and holding that the payments made by the assessee clearly constitute payments of royalties and the assessee was duty bound to withhold tax on these payments at the rate of 10%. The Ld. Departmental Representative further submitted that since the agreement with the payee Singapore companies was net of taxes therefore, after grossing up such rates would come to 11.11% and, therefore, the demand of tax and interest was rightly raised by the AO. The Ld. DR further submitted that CIT(A) was not correct in granting relief to the assessee, therefore, the impugned order may be set aside by restoring that of the AO. 7. The Ld. Assessee Representative (AR) contended that the Assessing Officer ignored the judgment of the Hon ble jurisdictional High Court of Delhi and other judgment on the issue which were rightly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has held that the contract for the integrated supply of hardware and software was to be treated as contract of supply of goods. The relevant extract from the judgment are reproduced below: 54. It is difficult to accept the aforesaid submissions in the facts of the present case. We have already held above that the assessee did not have any business connection in India. We have also held that the supply of equipment in question was in the nature of supply of goods. Therefore, this issue is to be examined keeping in view these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14(b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income-Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 20 of the Supply Contract. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . 60. Mr. Dastur is right in this submission which is based on the commentary on the GECD Model Convention. Such a distinction has been accepted in a recent ruling of the Authority for Advance Ruling (AAR) in Dassault Systems KK 229 CTR 125. We also find force in the submission of Mr. Dastur that even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9 (1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, para 3 of the DTAA. This is so because the definition in the DTAA is narrower than the definition in the Act. Article 13(3) brings within the ambit of the definition of royalty a payment made for the use of or the right to use a copyright of a literary work. Therefore, what is contemplated is a payment that is dependent upon user of the copyright and not a lump sum payment as is the position in the present case. 61. We thus hold that payment received by the assessee was towards the title and GSM sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 to 7 become infructuous and hence not being separately adjudicated. 10. Firstly, we may point out that the Ld. DR in the rejoinder fairly accepted that the similar issue in the similar set of facts and circumstances has been decided by the Hon ble jurisdictional High Court of Delhi in favour of the assessee in the case of DIT Vs. Ericsson AB (Supra) and DIT Vs. Nokia Network Oy (Supra) wherein the earlier view was further upheld by the Hon ble jurisdictional High Court of Delhi. 11. In view of above, in our humble understanding, the issue is squarely covered in favour of the assessee by the said decision of Hon ble jurisdictional High Court of Delhi. We further held that the CIT(A) was quite correct and justified in holding that the consideration paid by the assessee for purchasing of embedded software was to be treated as consideration for supply of goods and therefore, the same was taxable as business income and not as royalty. It was also held that therefore, the payments made by the assessee is not chargeable tax in India and hence not subject to withholding tax u/s 195 of the Act. We are unable to see any perversity ambiguity or any other valid reason to interfere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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