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M/s. TTI Team Telecom International Ltd. C/o. Sudit K. Parekh and Co. Versus ADIT (IT) -2 (2)

2016 (12) TMI 1542 - ITAT MUMBAI

Taxability of Software Supply - Royalty or Business Income - DTAA between India & Israel - Permanent Establishment (PE) - Held that:- In view of the judgment of Hon’ble Supreme Court in the case of Radhasoami Satsang (1991 (11) TMI 2 - SUPREME Court ), we respectfully follow the order of the Tribunal for A.Ys. 2003-04 & 2006-07 and hold that the payment received by the assessee on account of supply of software by the assessee to Reliance in pursuance to agreements made between both the parties d .....

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of agreement dated 27th September 2002, between the assessee and Reliance, it was agreed that a separate agreement would be entered into for providing annual maintenance services by the assessee to Reliance but this agreement was never entered into. Subsequently, assessee’s subsidiary i.e. TTI India entered into a separate agreement with Reliance for verification of AMC dated 28th May 2003. The said agreement was executed independently by TTI India as independent terms and conditions and on ‘Pr .....

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nses taxed as Fees for Technical Services in the hands of assessee - Held that:- In A.Y. 2005-06, Ld. CIT(A) decided this issue in favour of the assessee wherein it was held that amount of reimbursement of expenses (which were similar to expenses reimbursed in the impugned year) could not be taxed as FTS in the hands of assessee and this issue was not contested by the Revenue and thus attained finality. - Decided in favour of the assessee - Levy of interest u/s 234B - Held that:- Interest un .....

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Jasbir S. Chauhan (CIT-DR) ORDER Per Ashwani Taneja (Accountant Member): These appeals pertain to same assessee involving identical issue filed against separate orders passed by the Commissioner of Income Tax (Appeals) for different years. Therefore, these were heard together and being disposed by this common order. 2. During the course of hearing, arguments were made by Shri Vijay Mehta & Anuj Kisnadwala, Authorised Representatives (AR) on behalf of the Assessee and by Shri Jasbir S. Chauha .....

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r the supply of software be taxed @ 10% by treating it as royalty payment, within the meaning of section 9(1)(vi) of Income Tax Act 1961 and Article 12 of Double Taxation Avoidance Agreement (DTAA) between India & Israel. 1.2. Without prejudice to the above, the appellant contends that even if the consideration received for the supply of software are treated as Royalty under the Act, the same cannot be treated as Royalty within the meaning of Article 12 of DTAA between India & Israel. 1. .....

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cts and in the circumstances of the case and in law, the learned CIT(A) has erred in not following the favorable decisions of the Honorable Tribunal in the appellant's own case for A.Y. 2003-04 and A.Y. 2006-07 by holding that new facts have come to light during the year under consideration. In doing so, the learned CIT(A) has failed to appreciate that the facts before the learned CIT(A) are same as the facts before the Honorable Tribunal in the earlier years. 1.6. On the facts and in the ci .....

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ubsidiary Considered as PE of the Appellant 2.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the learned Assessing Officer of holding TTI Team Telecom Software Pvt. Ltd. ('TTI India') to be a dependent agent PE of the appellant company in India without appreciating the fact that the provisions of the DTAA are not fulfilled. 2.2. On the facts and in the circumstances of the case, the learned CIT(A) has erred confir .....

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d agreements and drawn erroneous conclusion. 2.4. Without prejudice to the above, the appellant further contends that learned CIT(A) has erred in applying the ruling of the Delhi High Court in case of Rolls Royce PLC to the appellants case and holding that TTI India constitutes a dependent agent PE of the appellant. The appellant contends that the facts of the Appellant's case are not identical to Rolls Royce PLC and hence TTI India does not constitute dependent agent PE of the appellant com .....

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imbursement of expenses as FTS under Article 13 of India - Israel DTAA. 3.2. Without prejudice to the above, the appellant contends that even if the reimbursements are treated as FTS under the Act, the same cannot be treated as FTS within the meaning of Article 13 of the India - Israel DTAA read with Protocol to the India-Israel DTAA and Article 12 of India- Canada DTAA, since such reimbursements neither make available technical knowledge, experience, skill, etc nor consist of the development an .....

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to the above, the appellant contends that even if the said amount is taxable in India as Business Profit then the executive and general administrative expenses incurred for earning this income is to be allowed as a deduction in arriving at the taxable income. 3.5. The appellant contends that learned CIT(A) has allowed deduction of traveling expenses of INR 73,35,088 and not salary expenses of INR 81,19,009 and once the salary expenses of INR 81,19,009 are allowed as deduction the income will be .....

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& 2005-06 received in the year under consideration, as taxable in India as FTS on cash basis, disregarding the submission made to the CIT(A) in this regard. 4.2. The learned CIT(A) has disregarded the fact that these amounts have already been held as taxable on accrual basis in the course of the assessment proceedings in the respective years and subsequently deleted in the appeal. 4.3. In view of the above, the Appellant respectfully prays that the double taxation of the reimbursement of ex .....

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his regard. 5.2. It is submitted by the appellant that while computing the total liability of the assessment year in which the income is sought to be taxed u/s 199, credit for the taxes deducted have to be given. 5.3.In view of the above, the Appellant respectfully prays that the credit for the taxes deducted on the amounts received towards supply of software & reimbursement of expenses be granted in the year under consideration. VI. Ground No. VI - Levy of interest under Section 234B 6.1. O .....

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per the provisions of the Act, the interest under section 234B of the Act is not leviable and the learned CIT(A) be directed to delete the interest levied under section 234B. 3. During the course of hearing, Ld. Counsel of the assessee did not press Ground No.4 & 5 and therefore these are dismissed as not pressed. 4. Ground No.1: It was stated by the Ld. Counsel during course of hearing that only Ground No.1.1 is the effective ground and others sub grounds are supporting arguments only. In .....

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e assessment year 2003-04 onwards, and this issue has already been decided in favour of the assessee by the Tribunal in assessee s own case in A.Ys. 2003- 04, 2005-06, 2006-07 & 2007-08 and he placed before us detailed orders passed by the Tribunal in A.Yrs. 2003-04 & 2006-07 and submitted that the issue stands covered and Ld. CIT(A) has grossly erred in refusing to follow the judgment of the Tribunal in assessee s own case for the earlier years despite the fact that there was no change .....

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454 which are against the assessee on this issue, therefore, Ld. CIT(A) has rightly refused to follow the earlier decisions of the Tribunal. 4.3. In rejoinder, the Ld. Counsel submitted that the base agreement remained the same, and the amendment agreement was only to accommodate up-gradation in mobile technology, but other material terms and conditions remained the same. Further, there has been positive legal development in favour of the assessee on this issue from various other High Courts. In .....

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lier years were passed in identical facts and legal position as compared to the year before us. If the answer to this question is yes, then, we shall like to respectfully follow the decision of the Tribunal rendered in earlier years in assessee s own case. If the answer to that question would be no, only then an effort could be made to decide the issue raised before us independently on its merits. We had also expressed our view in the open court during the course of hearing. Thus, with this unde .....

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supply of software with Reliance Infocomm Ltd. (RIL), now merged with Reliance Communications Ltd (Reliance). During the previous year relevant to AY 2008-09, the assessee company had entered into another agreement on 17th Sep. 2007 wherein the scope was extended for supply of additional software. The consideration for this was USD 1,810,433. Out of the said amount invoices to the extent of USI) 1,084839 was raised by the assessee company. During the previous year relevant to the assessment yea .....

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ax deducted (Rs.15.73 lacs) will be claimed in the year of receipt. On similar stand taken in past years the assessee has claimed refund of TDS on the alleged reimbursement of ₹ 1.72 crores pertaining to FY 2003-04, 2004-05 and 2005-06. 6. In the earlier years the receipts of the assessee on account of supply of software was treated as Royalty income by the Assessing Officer in AY 2003-04 and AY 2006-07. The assessee maintains that the supply of software is like supply of other product and .....

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dings for the current year i.e. Al 2008-09 which were not presented before the assessing officer in the past years. Based on these facts the understanding of the case needs revision and the findings of the Hon'ble ITAT and Ld. CIT(A) for the earlier years will not apply. a. The assessee company entered into a Software Supply & License Agreement (SSLA) with Reliance Infocom Ltd. (Reliance/RJL) on 27.09.2002 for supply of sof tware, acceptance testing, installation and arrangements for ann .....

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ntered into an agreement with RIL on 28.05.2003 for providing services such as installation, acceptance testing (UAT), commissioning and annual maintenance, which otherwise, was an obligation of the assessee. (Annexure C) f. The assessee was also a guarantor in the service contract between ITI India and RIL (Clause 18 and Annexure F of agreement dated 28.05.2003 - Annexure B) g. TTI India is the only company in the country to with which the assessee has entered into a service contract and which .....

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The Indian subsidiary of the assessee has undertaken the obligations which were, otherwise, a contractual responsibility of the assessee. The contract between ITI India and RIL was not done on a principal to principal basis. TI'I India, in concluding the contract with R1L, acted as an agent and representative of the assessee company. Therefore TTI India is but a PE of the assessee. 9. It is also contested by the Revenue that since source code of the software was transferred to the buyer, as .....

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over the world. There are no known clients of the same software, either in India or outside. All the above facts on to strengthen Revenue's claim that the receipt for supply of software through the SSLA and its subsequent amendment in the previous year corresponding to the assessment year under consideration in a receipts in the nature of royalty. 4.7. Thereafter, Ld. AO made analysis of various clauses of the agreement and took note of a clause with regard to transfer of Source Code of the .....

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with computer under specified schemes of Government of India are excluded from the definition of Royalty further establishes that other software licenses are included in royalty for the purposes of section 9. 39. Reliance did not only have rights over the machine code i.e. the binary format, but also the source code developed by the assessee. The contention of the assessee that it has purchased an off-the-shelf product is conclusively proved to be false. Source code is the intellectual property .....

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s the very creation of programmers & developers) clearly establ ishes that the intellectual property of the sof tware so developed had also been explicitly transferred to Reliance through the agreement. 40. Interestingly it may be noted that unlike clause 2.1 of the SSLA, which speaks of the transfer of software being 'royalty-free' the transfer of source code is not stated to be royalty free. This alone established that the transfer of source code cannot be said to be a 'royalty .....

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deration for transfer of intellectual property, copy righted material, conduction of UAT, successful installation and assurance of annual maintenance. The consideration cannot be divided into two parts - one part given for the source code and the other for the executable. The one who has the source code can always generate the executable machine code at will. Not much value is added by transfer of binary executable once the source code has already been transferred. The assessee has misled the de .....

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where the software has no available market or another known client in the country or elsewhere. 44. The income from the purported sale of good has been treated by the Assessing Officer in the past as royalty income in AY 2003-04 onwards. There have been new findings-namely the terms & conditions of the SSLA, the Escrow agreement for transfer of Source Code, and the agreement between Reliance & Indian subsidiary TTI India on the guarantee of the assessee. These new findings clearly expli .....

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ion 271(1)(c) of the Income Tax Act, 1961 are initiated separately for furnishing inaccurate particulars of income. 4.8. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and submitted in detail that there was no material change in fact or legal position. It was also argued that Ld. CIT(A) was bound by the decision of the Tribunal in assessee s own case of earlier years. But, Ld. CIT(A) endorsed the observations of the AO relying upon the judgment of Hon ble Karnataka High Cour .....

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Reliance indicated that right in copyright of the software was transferred by the assessee to Reliance and therefore, payment for the same fell into the definition of royalty as envisaged under the Act as well as Treaty. 4.9. Still being aggrieved, the assessee filed before the Tribunal. During the course of hearing before us, Ld. Counsel of the assessee submitted that there was no change in facts. In support of his arguments, he drew our attention on the amended agreement dated 17th September, .....

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It was also submitted that Source Code was never given to escrow agent. Our attention was drawn on page no.156 which is a copy of the declaration submitted by the assessee wherein it has been affirmed that the assessee never entered into any escrow agreement and thus, the Source Code of the software under question was never deposited with the agent for the benefit of reliance. Our attention was drawn on copies of the judgments of the Tribunal passed in assessee s own case for A.Y. 2003-04 and 2 .....

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in detail in their orders by the AO as well as Ld. CIT(A). He submitted that in this case material change in fact was that the new agreement contained clause with regard to transfer of source code. It was submitted that since source code was agreed to be transferred, therefore it is clear case of transfer of copyright. He submitted at the conclusion of the hearing a brief note summarising his submissions as under: 1. On the issue whether the Amendments/Explanations inserted in the Income Tax Ac .....

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39;ble High court was NOT that whether Amendments in the I.T. Act can be read into the DTAA or not and therefore, the Hon'ble High Court can not be said to have answered it as claimed. ii. In the said case, old DTAA (1960) between India and Germany was under consideration in which "Royalty" had not been defined.( Para 15). iii. "Royalty" under the I.T. Act has been def ined in Explanation 2 to S.9(1)(vi), inserted by the Finance Act 1976 w.e.f 01-06-1976. iv. The agreemen .....

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ions inserted subsequently. Vi. For the purpose of the present appeal, the definition of "royalty" as applicable has been defined both under the DTAA as well as I.T. Act and the issue is regarding the application of Explanations (clarificatory provisions) inserted in the Act into the DTAA by virtue of article 3(2) of the DTAA. vii. The said decision in the case of Siemens AG, supra was rendered in 2008 when the only clarificatory provision by way of Explanation in section 9 was the Exp .....

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I.T. Act and what was the character of payment under the DTAA. ix. It is not disputed by the Revenue that the provisions of DTAA, if beneficial to the assesse shall prevail over the provisions of the I.T. Act. 2. In my respectful submissions, a perusal of Bombay HC decision in the case of Siemens AG, supra would reveal that: i. In the operational part (paras 27 to 31) of the judgment in the case of Siemens AG, supra, nowhere it is mentioned that amendments in the I.T. Act can not be read into DT .....

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order, the Hon'ble HC has approved the insertion of Explanation below S.9(2) inserted by the Finance Act 2007, thereby implying that the Clarif icatory Explanations could be read into modern DTAAs. iv. Mumbai Tribunal In the case of Viacom 18 Media (P.) Ltd.(2014) 162 TTJ 336 (Mum) has explained the import of Bombay HC decision in right perspective in paras 16 and 17 of its order while rejecting the assessee's argument that the HC has held that amendments in the Act can not be read into .....

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e supplementary agreement which was entered during the relevant period to show that intention of providing the source code by the assessee to Reliance was not to transfer the full rights in the software. But, it was meant only to protect the buyer in case of any disaster management so as to enable it to do requisite repairs. It was further submitted that in any case, object code was not transferred to Reliance. Thus, even if some modification was considered necessary by Reliance in the source co .....

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the intention of both the parties that when the treaty was drafted computer software programme was not intended to be included. He again drew our attention to the declaration showing that source code was actually never provided by the assessee to Reliance and submitted that this vital fact has not been contradicted by any authority so far or even by Ld. CIT-DR during the course of hearing before the Tribunal. He prayed reliance on the following judgments: i. DIT v. Infrasoft Ltd. 264 CTR 329(Del .....

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judgment of the Tribunal passed in assessee s own case in the earlier years. The Only issue to be decided by us is whether amount received by the assessee on account of supply of software to M/s. Reliance Infocom Ltd.( subsequently name changed to Reliance Communication Ltd.) constituted payment of royalty within the meaning of section 9(1)(vi) of the Act and Article 12 of DTAA between India and Israel. It is noted by us that as discussed in detail above, the impugned amounts have been received .....

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27th September 2002 has been analysed by the Tribunal twice in two separate orders i.e. for A.Y. 2003-04 and A.Y. 2006-07 and detailed orders were passed wherein it was observed, after analyzing various clauses of the agreement and position of law, that the impugned amount did not constitute royalty in the hands of the assessee. Under these circumstances, we shall not repeat the exercise done by the coordinate bench in assessee s own case, nor shall we like to modify the conclusion drawn by the .....

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lf within the territory of India and only for that purpose (and to the extent of the same under a limited Lincense as defined herein) a perpetual irrevocable, nonexclusive, royalty free, worldwide license to install, use and operate and copy the software and the documentation licensed under any approved Purchase order in accordance with the terms and conditions contained in Wireless Reliance network within India. Agreement solely for the implementation operation, management and maintenance of th .....

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Is prior written consent, and further, shall not delete any and all such proprietary legends for such copies as are made. The software is to be locate and used at the designated site/s specified in the purchase order only. (b) The aforementioned licenses set forth above are hereinafter be referred to as the Software Licenses . Such software Licenses shall not be sold transferred, assigned, sublicensed by or used by outsourcees of Reliance without TTIs prior written consent except with respect to .....

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of a portion of the wireless Reliance network to be operated in the territory of India only, provided that in each such case specified in (i)-(iv) above, such transferee, assignee, or outsourcee agrees in writing to abide by all the terms and conditions set forth in the software Licenses and the TTI is informed of the same in writing by Reliance and provided further that the rights transferred, assigned or granted to outsources, as the case may be shall be those reasonably necessary, to fulfill .....

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titled to grant such Authorized subcontractors a limited sub license to use the software solely to provide services to Reliance under such contractor agreement in respect of the software (the limited License). The limited License expressly excludes any right for the Authorized Sub-contractors. Such limited License shall terminate on termination of the contractor Agreement (or if later, on termination of any obligation to provide services consequent upon termination of such contractor agreement p .....

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permitted to reverse engineer, alter, software programme or tinker with proprietary legends of the said software. The software was permitted to be located and used only at the sites designated in the purchase order issued by Reliance. Further, such software was not permitted to be freely sold by Reliance except for strict usages for Wireless Reliance Network only, as permitted in the agreement. The AO noted that in the said agreement, there were certain clauses with regard to transfer of source .....

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the software. TTI promptly will update the source code in escrow to reflect all revisions, modifications and enhancements to the software that are provided to Reliance hereunder. In the event that the Escrow Agreement has not been executed and the source code delivered to Escrow Agent within thirty (30) days after acceptance of the Software, then until such events have occurred Reliance shall be entitle to terminative this agreement by written notice provided that Reliance has given written not .....

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t (each, a Release condition ) the Source Code placed in escrow will be delivered to Reliance for us, copying in connection with Reliance s use, maintenance and support of the software in accordance with its rights under this Agreement. 11.3 License; Ownership. TTI hereby grants and agrees to grant to Reliance a perpetual, non-exclusive, worldwide license to use, copy, and create derivative works the purposes specified in Section 11.2 (the Derivative Works ). Reliance will be the exclusive owner .....

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ance for maintenance support of the software in accordance with its rights granted under the said agreement. Thus, source code was not intended to be transferred so as to transfer full-fledged right embedded in the software by the assessee to Reliance. It has been further brought to our notice that in any case, no Escrow Agreement has been entered into between the assessee and Reliance and therefore there was no question of providing the source code by the assessee to Reliance. It was further su .....

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assistance of the parties that this agreement was entered into by the parties mainly for the purpose of widening the scope of Wireless Reliance Network for which software was provided by the assessee to Reliance. The original agreement permitted usages of software for the Wireless Reliance network for the mobiles phones using CDMA technology. But, subsequently mobile phones based on GSM technology were also included under the aforesaid amendment agreement. Thus, in brief, main objective of the .....

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eased, but all other terms and conditions remained same. We do not find any change much less any material change in the terms and conditions of the original agreement which may have any bearing on the decision which has been taken by the Tribunal in earlier years. One of the main objections which had been prominently discussed by the lower authorities is with respect to transfer of source code by the assessee to Reliance. It is noted by us that firstly, as discussed above, the source code was in .....

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oever it may concern 1. Exhibit C of the Original Software Supply and License Agreement (SSLA) dated 27th September 2002 executed between TTI Team Telecom International Ltd. (TTI) and Reliance Infocomm Ltd. (now known as Reliance Communications Ltd. (RCL) has never been executed. 2. The original SSLA dated 27th September, 2002 between TTI and RCL contained a clause for the transfer of source code to RCL in an escrow account. However, TTI and RCL did not enter any Escrow Agreement and the source .....

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respectfully follow orders of the Tribunal passed in earlier years. It is noted by us that the Tribunal has in its order for A.Y. 2006-07 in assessee s own case vide order dated 26.08.2011 in ITA No.3939/Mum/2010 analysed all the facts in detail and decided this issue in favour of the assessee, after analyzing provisions of the Act as well as provisions of Treaty at great length. Relevant part of the order is reproduced hereunder: 13. In view of the above discussions, as long as the assessee can .....

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e provisions of art. 5 of the tax treaty, and, accordingly, the assessee cannot be held liable to be taxed in respect of business profits, under article 7, on supply of software in question. The case of the Revenue really rests on taxability under art. 12 which provides as follows: "Royalties 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties may also be taxed in the Contracting State .....

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process, or for information concerning industrial, commercial or scientific experience. 4. The provisions of paras 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a PE situated therein, or perform in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid .....

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o pay the royalties was incurred, and such royalties are borne by such PE or fixed base, then such royalties shall be deemed to arise in the State in which the PE or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the .....

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nsideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience". The question then arises whether a payment for computer software cannot be a payment for use of or right to use of a copyright of literary, artistic or scientific work, including cinema photographic film , a .....

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f, or the right to use, any copyright of literary, artistic or scientific work", we find that this issue directly came up for consideration of a Special Bench of this Tribunal in the case of Motorola Inc. (supra). That was a case in which the Special Bench had an occasion to decide whether payment for software amounts to royalty , for the purposes of India Sweden tax treaty [(1998) 229 ITR (St) 11] which incidentally is the same as in Indo-Israel tax treaty and which also defines royalty as .....

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ghted article and not a copyright right, and the payment received by the assessee in respect of the software cannot, therefore, be considered as royalty either under the IT Act or the DTAA". Right now we are only concerned with the provisions of the tax treaty, and we have noticed that the provisions of tax treaty as before the Special Bench are exactly the same as before us in this case. The issue, therefore, as to whether payment for supply of software can be viewed as a payment for copyr .....

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a work are distinct from the use of a copyrighted article. The meaning of "use of copyright of a work" cannot be treated as extending to "use of a copyrighted work" as well, as it would amount to doing clear violence to the words employed by the treaty. Copyright is one thing, and copyrighted article is quite another thing. To give a simple example, when a person is using a music compact disc, that person is using the copyrighted article, i.e. the product itself, and not the .....

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to make a public performance of the computer programme. (iv) The right to publicly display the computer programme. 17. It is not even Revenue s case that any of these rights have been transferred by the assessee, on the facts of this case, and, for this reason, the payment for software cannot be treated as payment for use of copyright in the software. As we hold so, we may mention that in the case of Gracemac (supra), a contrary view has been taken but that conclusion is arrived at in the light .....

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on that we are dealing with are thus certainly not in pari materia with this statutory provision, and, by the virtue of s. 90(2) of the Act, the provisions of India Israel tax treaty clearly override this statutory provision. In Gracemac decision (supra), the Co-ordinate Bench was of the view that the provisions of the applicable tax treaty and the IT Act are "identical"-a position which does not prevail in the situation before us. We, therefore, see no reasons to be guided by Gracemac .....

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schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result", but the moot question is as to what is that a customer pays for when he buys, or to put it in technical terms obtains licence to use the software-for the process of executing the instructions in the software, or for the results achieved on account of use of the software. To draw an analogy, it is akin to a situation in which a person .....

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, when someone pays for the software, he actually pays for a product which gives certain results, and not the process of execution of instructions embedded therein. As a matter of fact, under standard terms and conditions for sale of software, the buyer of software is not even allowed to tinker with the process on the basis of which such software runs or to even work around the technical limitations of the software. In Asia Satellite Telecommunications Co. Ltd. vs. Dy. CIT (2003) 78 TTJ (Del) 48 .....

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rted as Asia Satellite Telecommunications Co. Ltd. vs. Director of IT (2011) 238 CTR (Del) 233 : (2011) 51 DTR (Del) 1 : (2011) 332 ITR 340 (Del), their Lordships, after a very erudite and detailed discussion, concluded that "we are unable to subscribe to the view taken by the Tribunal in the impugned judgment on the interpretation of s. 9(1)(vi) of the Act". It cannot, therefore, be open to us to approve the stand of the Revenue to the effect that the payment for software is de facto .....

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principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. This principle of interpretation of statutes, in our considered view, holds equally good for interpretation of a treaty provision. Explaining this principle in more general terms, a .....

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o out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms anything else she needs a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejus .....

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rdinate Bench s decision in the case of Asia Satellite Telecommunication Co Ltd. (supra), we are of the considered view that the payment for software, by no stretch of logic, can be treated as a payment for "a process" liable to be taxed as royalty. This is precisely what was held by a Co-ordinate Bench of this Tribunal in the case of Sonata Information Technology (supra), though for different reasons. 19. On this aspect of the matter also, Gracemac decision (supra) has come to a diffe .....

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r precedents on that issue from other Co-ordinate Benches, does not bind the subsequent Co-ordinate Benches. We have all the respect and admiration for the Co-ordinate Bench decision, but, in our considered view, this decision does not constitute a binding judicial precedent, and we leave it at that. The other aspect of the matter is that the issue of taxability of software, as a copyrighted article, is directly covered by a Special Bench of this Tribunal and the said decision, coming from a Ben .....

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n be put against the Special Bench decisions, the Special Bench decision continues to have a binding force on this Division Bench. In our humble understanding, the Special Bench decision in Motorola s case (supra) binds us and we have to respectfully follow the same. Respectfully following this Special Bench decision, as also a series of other Division Bench decisions on the same lines, we must approve the conclusions arrived at by the CIT(A). 20. In view of the above discussions, respectfully f .....

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03-04 & 2006-07 and hold that the payment received by the assessee on account of supply of software by the assessee to Reliance in pursuance to agreements made between both the parties dated 27th September, 2002 read with supplementary agreement 17th September, 2007 is not in the nature of Royalty within the meaning of Article 12 of DTAA between India and Israel and therefore not liable to tax as such, but assessable as business income of the assessee subject to other provisions of the Act a .....

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TI India undertook to del iver al l technical and commercial documentation, maintenance and operational process, reports, drawing for execution of services mentioned in the statement of work to the customer Reliance for and on behalf of the assessee. TTI India has also conducted user acceptance test for the software installation, commissioning and maintenance services on behalf of the assessee. Reliance is the only client in India to whom the software has been supplied. The assessee has guarante .....

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t guarantee clause of the agreement and has also held that TTI India and the assessee has close and invisible nexus for providing the services. Reliance has also been placed upon the fact that expenses to the tune of ₹ 154 lakhs have been reimbursed to the parent company at cost, implying thereby that the employees of the assessee have been traveling to India to render the services and that TTI India is not capable for rendering necessary services independently. 5.1. Being aggrieved, the a .....

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an subsidiary was DAPE of the assessee. Ld. CIT(A) simply reproduced the aforesaid judgment and concluded that the aforesaid company being Indian subsidiary of the assessee constituted its PE in India. 5.2. Still being aggrieved, the assessee contested this issue before the Tribunal. During the course of hearing, it was submitted by the Ld. Counsel that lower authorities have neither understood nor discussed the facts properly while upholding TTI India as DAPE of the assessee. It was submitted b .....

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ly by TTI India as independent terms and conditions and on Principal to Principal basis, and assessee was not part to the said agreement. It was further submitted that Articles of Indo Israel DTAA have not been referred to at all while deciding this issue against the assessee. It was also submitted that dependent agency principles were not applicable in this case. It was also submitted that in A.Y. 2006-07, the Tribunal has already examined all the facts and held that assessee did not have any P .....

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n assessee s own case in A.Y. 2006-07 clearly held that assessee had no permanent establishment in India. It is further noted that TTI India has entered into the agreement on independent basis. No facts have been discussed by the Ld. CIT(A) to show that how the judgment of Rolls Royce PLC was applicable in the preference of the decisions of the Tribunal rendered in assessee s own case. Under these circumstances, we do not find any reason to deviate from the order of the Tribunal of the earlier y .....

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as a Permanent Establishment in India, therefore reimbursement expenses was nothing but business income of the assessee in India. During the course of hearing before us, it was stated by the Ld. Counsel that in A.Y. 2005-06, Ld. CIT(A) decided this issue in favour of the assessee wherein it was held that amount of reimbursement of expenses (which were similar to expenses reimbursed in the impugned year) could not be taxed as FTS in the hands of assessee and this issue was not contested by the Re .....

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r AY 2005-06 in general and paras 3.6 to 3.8 in particular, we find the same are relevant in this regard, and therefore, the said paras are extracted as follows: "3.6. The payments received by the appellant are not in respect of services that make available any technical knowledge, experience, skill, know-how or process. As per the MOU of India-US Treaty, generally technology will be considered "make available" when the person acquiring the service is enabled to apply the technolo .....

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een India-US DTAA which also supports its view. The Ld AR has also placed reliance on Boston Consulting Group P Ltd (94 TD 31) (Mum) and other judicial citations referred to above which says that "the period of MOU clearly revealed that for a fees to be called as fees for technical services rendered, it is essential that technical knowledge, skill, knowhow should be made available to the assessee should be at liberty to use them in his own right. The services referred to in the instant case .....

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ered opinion, that the appellant merely rendered services without imparting any knowledge, skills, etc to TTIIndia. Consequently, the services are not in the nature of fees for technical services within the meaning of Article 13(3) of the Indo-Israel Treaty read with clause 2 of the protocol dated29.01.1996. 3.8 I have also considered the cases relied by the AO in his order dated 19.12.2008 and mentioned above. I have perused the same it is noticed that these decisions relied upon by the Assessi .....

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id judgment is relevant in this regard and the relevant portion of the said para is extracted as follows: "33. ………………the last contention whether the amounts by way of reimbursements are liable to tax. To answer that issue, we may gainfully refer to the judgment of a Division Bench of the Delhi High Court in Industrial Engineering Projects (P) Ltd's case (supra). The Ld Division Bench of the Delhi High Court was pleased to hold that reimbursement .....

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t imparting any knowledge, skills etc to TTI-India, therefore, the said services are not in the nature of fees for technical services within the meaning of Article 13(3) of India-Israel Tax Treat read with clause 2 of the protocol dated 29.01.1996. We also find that on identical facts, the CIT (A)'s decision for the AY 2005-06 was accepted by the Revenue and no appeal is filed against the said order of the CIT (A). When the facts are identical, and the difference is only in figures, deviatin .....

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