TMI Blog2018 (6) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... is premature and it cannot be adjudicated - we direct the Assessing Officer to given eligible credit of TDS, as per rules, after verification. Levy of interest under section 234B - Held that:- Issue being consequential in nature, the Assessing Officer is directed to act accordingly as per Rules. Allowability of deduction of Research and Development expenses while computing the taxable income of the asessee’s alleged PE in India - Held that:- The view is covered by the assessee’s own case reported in (2016 (5) TMI 373 - DELHI HIGH COURT) - thus we dismiss these grounds of appeal of the Revenue. - ITA Nos. 5482, 3240, 3241/Del/2012 & 553/Del/2015, ITA Nos. 5505/Del/2012 - - - Dated:- 28-5-2018 - Shri Bhavnesh Saini, Judicial Member And Shri L.P. Sahu, Accountant Member Assessee by : Shri Sandeep Karhail, Advocate Revenue by : Shri G.K. Dhall, CIT/DR ORDER Per L.P. Sahu, A. M. Out of above five appeals, the former four appeals are filed at the instance of assessee and last one by the Revenue. The cross appeals for A.Y. 2006-07 are directed against the order of the ld. CIT(A)-XXIX, New Delhi dated 22.08.2012, whereas the remaining three appeals by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Canada; the employees of the assessee or other personnel carried out the business of the assessee through the premises of the LO or the premises of the subsidiary; the assessee has undertaken all pre-supply and post supply activities in India; Nortel India has neither the finance, nor technology nor experience to install these networks and therefore their only installing equipment supplied by its principal and that too at each stage with the help of the assessee, and since Indian company did not have any expertise for installation, the same was provided/supervised by the assessee; the premises of Nortel India is used as a sales outlet of the assessee in India; the title of equipment does not pass outside India since the equipment is finally accepted by the customer when it passes the acceptance test; the supply contract does not end with the loading the equipment on the ship but also includes number of activities which are carried out in the Indian Territory and the compensation/remuneration for that is also included in the consideration; the expat employees remained and rendered services for more than 30 days in a fiscal year; the expatriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Canada, unless the conditions of paragraph 5 of Article 7 of the Indo-US DTAA is satisfied, it cannot be held that Nortel India constituted a fixed place of business of the Assessee or Nortel Canada. 17. In respect of the allegation that the employees of the assessee or other personnel carried out the business of the assessee through the premises of LO or the premises of the subsidiary, vide paragraph No. 74 Hon'ble High Court held that,- 74. The CIT(A) as well as the ITAT has proceeded on the basis that the Assessee had employed the services of Nortel India for fulfilling its obligations of installation, commissioning, after sales service and warranty services. The ITAT also concurred with the view that since employees of group companies had visited India in connection with the project, the business of the Assessee was carried out by those employees from the business premises of Nortel India and Nortel LO. In this regard, it is relevant to observe that a subsidiary company is an independent tax entity and its income is chargeable to tax in the state where it is resident. In the present case, the tax payable on activities carried out by Nortel India would have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf and not on behalf of the Assessee or Nortel Canada. Undisputedly, Nortel India was also received the agreed consideration for performance of the Services Contract directly by Reliance. 20. The High Court rejected the contention of the revenue that the premises of Nortel India was used as a sales outlet of the assessee in India, by observing in paragraph No. 70 that,- 70. The AO has further alleged that the offices of Nortel LO and Nortel India were used as a sales outlet. In our view, this finding is also unmerited as there is no material which would support this view. The facts on record only indicate that Nortel India negotiated contracts with Reliance. Even assuming that the contracts form a part of the single turnkey contract, which include supply of equipment - as held by the authorities below - the same cannot lead to the conclusion that Nortel India was acting as a sales outlet. 21. Insofar as the observations of the 1st appellate authority that the supply contract does not end with the loading the equipment on the ship but also includes number of activities which are carried out in the Indian Territory and the compensation/remuneration for that is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and warranty services. The ITAT also concurred with the view that since employees of group companies had visited India in connection with the project, the business of the Assessee was carried out by those employees from the business premises of Nortel India and Nortel LO. In this regard, it is relevant to observe that a subsidiary company is an independent tax entity and its income is chargeable to tax in the state where it is resident. In the present case, the tax payable on activities carried out by Nortel India would have to be captured in the hands of Nortel India. Chapter X of the Act provides an exhaustive mechanism for determining the Arm's Length Price in case of related party transactions for ensuring that real income of an Indian Assessee is charged to tax under the Act. Thus, the income from installation, commissioning and testing activities as well as any function performed by expatriate employees of the group companies seconded to Nortel India would be subject to tax in the hands of Nortel India and the same cannot be considered as income of the Assessee. 23. The Hon ble High Court considered the aspect whether or not the Nortel India is dependent on agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes repair service, supply of spares without extra charges till warranty period, removing software bugs and supply of software updates without extra charges till warranty period. He submits that since most of the work in execution of the supply contract includes the steps taken on the Indian soil, it cannot be said that only when the product was finally accepted by the customer, the title in the equipment passed to the Indian customer and such part of contract took place on Indian soil and liable for tax. 26. As could be seen from the order of the Hon ble jurisdictional High Court, this aspect of passing of title of the equipment, whether it is in India or outside India in the light of the fact that the equipment was finally accepted by the customer when it passes the acceptance test, was also considered and in paragraph No. 47 the Hon ble High Court observed that, - 47. As noticed earlier, there seems to be no dispute that the title to the equipment passed in favour of Reliance overseas. However, the AO, CIT (A) and ITAT did not consider the same to be relevant as according to them, the equipment continued to be in the possession of the Nortel Group till its final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of this case also, and accordingly we find that the income of the assessee wherein from supply of equipment was not chargeable to tax in India and the question relating to the attribution of any part of such income to activities in India does not arise. Income from installation, commissioning and testing activities as well as any function performed by expatriate employees of the group companies seconded to Nortel India would be subject to tax in the hands of Nortel India and the same cannot be considered as income of the assessee therein. In view of our finding, the question of attribution of any income to the alleged PE does not arise. Grounds No. 1 and 1.1 in all the appeals of the assessee are, accordingly, allowed. 6. There being complete parity of facts, respectfully following the decision of Coordinate Bench, we decide this issue in favour of the assessee holding that the income of the assessee from supply of equipment in India was not chargeable to tax in India and therefore any such income or any part thereof is not attributable to the activities of assessee in India. Therefore, grounds Nos. 1 2 in all the four appeals of the assessee deserve to be allowed. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the treaty which in the instant case is the Copyright Act, 1957. He therefore proceeded to observe that the Indian copyright acts 1957 or any other circular of CBDT do not make any distinction between Copyright Right or Copyrighted Article and also that the Singapore Regulations cannot be extended to the Indian Territory as within the territory of sovereign the laws promulgated by the Indian sovereign shall apply. On this premise, CIT(A) distinguished the decisions of the Special Bench in the case of Motorola, (97 ITD 1) on the basis of facts and the case in Tata consultancy services delivered by the Hon ble Apex court on the ground that such a decision was pronounced on the basis of the Sales- tax Act and not on the basis of the provisions of the income tax Act. 31. Be that as it may, an identically similar issue had arisen in the case of group company i.e., Nortel Networks India International Inc Vs. ADIT in ITA Nos. 3313 to 3315/Del/2012 wherein a coordinate bench of this Tribunal while placing reliance on the decision of the Hon ble jurisdictional High Court in the case of CIT Vs. ZTE Corporation (2017) 392 ITR page 80 (Del.) held that, - 19. Now coming to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an outright sale of the copyright or assignment, under Section 18 of the Act. Section 16 of the Copyright Act enacts that there cannot be any other kind of right termed as copyright . 22. In the present case, the facts are closely similar to Ericson. The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, the nomenclature (of license or some other fee) is indeterminate of the true nature. Nor is the circumstance that updates of the software are routinely given to the assessee's customers. These facts do not detract from the nature of the transaction, which was supply of software, in the nature of articles or goods. This court is also not persuaded with the submission that the payments, if not royalty, amounted to payments for the use of machinery or equipment. 21. Having considered the submissions of the Ld. AR in the light of the orders of the authorities below and the above decision, we find ourselves in agreement with the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, these grounds of assessee s appeals are liable to be dismissed. 10. The next issue raised by assessee in appeal for A.Y. 2007-08 pertains to non-grant of credit to the assessee for the taxes deducted at source while computing the demand payable. In this context, we direct the Assessing Officer to given eligible credit of TDS, as per rules, after verification. 11. The last issue raised by the assessee in its appeals for A. Yrs. 2007-08 to 2010-11 (Ground No. 5 4) and by Revenue in appeal for A.Y. 2006- 07(Ground No. 7) is with respect to levy of interest u/s. 234B of the Act. This issue, being consequential in nature, the Assessing Officer is directed to act accordingly as per Rules. 12. The only issue which left for consideration is with respect to allowability of deduction of Research and Development expenses while computing the taxable income of the asessee s alleged PE in India. The Revenue has challenged the impugned order in this regard in appeal for A.Y. 2006-07 vide ground No. 1. We find this issue also covered by the decision of Tribunal dated 24.04.2018 (supra), wherein the Coordinate Bench in the similar circumstances has dismissed such grounds of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business and earning income that is being tax, and assessee had not taken any steps in this direction. Further it is stated by the Ld. AO that while giving affected to the appeal order is not open for him to start any new line of inquiry as to the allowability of any expense. You admitted that this expenses are not verified by him and if desired he will conduct such enquiry. 42. However, CIT(A) noticed that no reason for this allowance of R D expenses was given either in the assessment order passed under section 143(3) or at the time of appeal effect orders; the assessee is engaged in the business of supply of highly advanced the telecom network equipment to telecom operators around the globe as such the R D expenditure cannot be denied to be a business necessity for carrying out innovation and development of improved products to keep up with the changes in the technology; the R D expenses appear in the same set of accounts of the assessee from which the sales figures of the equipment have been adopted and a GP rate has also been applied on the basis of the same accounts; and there are several cases of foreign, equipment manufacturers and suppliers including Nokia Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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