TMI Blog2018 (8) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer passed u/s. 144C(1)/143(3) of the Income Tax Act, 1961 pursuant to the direction u/s.144C(5) of the Dispute Resolution Panel, for the concerned assessment year. 2. The common issue raised read as under: 1. On the facts and in the circumstances of the case and in law, the Assessing Officer ( AO ) / Dispute Resolution Panel ( DRP ) erred in holding that the income of the Appellant of ₹ 114, 98, 90, 239/- (Rs.1, 07, 41, 99, 767/- in assessment year 2009-10) is chargeable to tax in India. 2. On the facts and in the circumstance of the case and in law, the AO / DRP have passed the assessment order in arbitrary manner and without application of mind and, hence, the order is bad in law. Taxability of Income 3. On the facts and in the circumstances of the case and in law the AO / DRP erred in holding that the amounts received by the Appellant from supply of software to Reliance Communications Limited (previously known as Reliance Infocomm Limited) (hereinafter referred to as 'Reliance') are 'Royalty' in nature under the provisions of the Act and under Article 12 of the Double Taxation Avoidance Agreement between India and USA (hereinafter refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of the Appellant. The Appellant submits that the AO / DRP came to the aforesaid conclusion on their own surmises and conjectures without there being any factual basis for the same. 12. Without prejudice to the above, the AO / DRP erred in not appreciating that all critical activities in relation to the sale of software were carried on by the Appellant outside India and all risks resided outside of India and no amount can be held to be attributable to the PE in India. 13. On the fact and in the circumstances of the case in law, the AO / DRP erred in not considering and not taking congnizance of the profit attribution study filed by the Appellant to substantiate the profit attribution ratio. 14. On the fact and in the circumstances of the case in law, the AO / DRP erred in not referring the matter to the Transfer Pricing Officer for computing the profits attributable to the PE in India. Levy of Interest 15. On the facts and in the circumstances of the case and in law the AO / DRP erred in levying interest under section 234A of the Act. 16. On the facts and in the circumstances of the case and in law the AO / DRP erred in levying interest under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome does not arise. 10. Per contra, the ld. Counsel of the assessee did not dispute that the issue involved in covered in favour of the assessee by the ITAT decisions as above. 11. Upon careful consideration, we note that the issues involved in the appeal are already covered in favour of the assessee by the ITAT decision in assessee s own case as referred above. It is not the case that the Hon'ble jurisdictional High Court has reversed the decision. 12. As regards the decision that the payments are not royalty, this ITAT in ITA Nos. 7001 to 7004/Mum/2010 vide order dated 02.05.2018 on identical issue has adjudicated as under: 4. Subsequently, in these appeals miscellaneous application was filed before the ITAT. The Tribunal vide order dated 09.10.2017 has noted that similar miscellaneous application filed by Reliance Communication Ltd. has been allowed by the Tribunal vide order dated 18.11.2016. The Tribunal has stated that it was brought to the notice of the Bench that the assessee was also party in the order passed by the Tribunal dated 06.09.2013 along with M/s. Reliance Communication Ltd. Accordingly the Tribunal had recalled the order. Subsequently a corrigen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he software supply was in the nature of transfer of copyrighted article and not transfer of a copyrighted right. If replies to questions no. iv) and v) are negative and replies to remaining questions are in positive, then it can be safely held that the payments made by an assessees cannot be treated royalty. We can summarise the above discussion by holding that the terms and conditions of the agreements will decide as to whether the payments made by the assessees to the suppliers of software for the wireless network can be considered royalty. In other words, rights of the Owner of the IPR.s on one hand and the rights and duties of purchasers/users on the other hand are the decisive factors. If the Owner retains absolute rights of the IPR.s with itself then the payments made by the user will not be royalty. But, if the Owner transfers the rights of the property against periodical or onetime payment to the user it will be a case of payment of royalty. Thus, it is the degree of transfer of the rights of IPR.s that is very crucial. 7.1. We do not have even slightest doubt in our mind that the answers to questions number four and five, at paragraph 7, are plain and simple NO, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. But, we are not adjudicating the issue before us, only on that basis. We have considered the individual agreements of the following suppliers: e-Serv Global Limited., ECI Telecom-NGTS Ltd., Septier Communication Ltd., Verint Systems Ltd.(I), 3 Com Asia Pacific Rim Pte.Ltd., Actix Pte. Ltd., Agilent technologies Singapore (Sales) Pte. Ltd., Infovista (Asia Pacific) Pte. Ltd. Singapore, Agilent technologies Singapore (Sales) Pte. Ltd., Nortel Network Singapore Pte. Ltd., Sun Microsystem Pte. Ltd., Envilogg AB, Techtronix Inc., Tekelec Inc., Ulticom Inc. and Venturi Wireless Inc. USA. From the perusal of the agreements one thing is clear that there was no transfer of copyright of the software in any manner. As mentioned earlier, a copyright is different from the work in respect of which copyright subsists. The assessee had only got a copy of software without any part of the copyright of the software. All the arguments advanced by the DR about ICA, including the section 30, in our opinion are of no help. At the cost of repletion, we are holding that in the cases under consideration payments made by the assessee was for copyrighted articles. So, we are of the opinion that paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariably, the court would adopt the interpretation which is favour of the taxpayer . The Hon ble Court held as under: 29. It is well-settled that when two interpretations are possible, then invariably, the court would adopt the interpretation which is in favour of the taxpayer and against the Revenue. Reference may be made to the decision in Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714, of this court wherein, inter alia, it was observed as under : While dealing with a taxing provision, the principle of ' strict interpretation' should be applied. The court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person. It would never be done by invoking the provisions of another Act, which are not attracted. It is also trite that while two interpretations are possible, the court ordinarily would interpret the provisions in favour of a taxpayer and against the Revenue. Considering the above, we would like to follow the judgments of Hon ble Madras and Delhi High Courts rather than judgment of Hon ble Karnataka High Court. 10. We would also like to deal with other arguments advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for supply of software under a licence agreement is to be considered as royalty under the provisions of the Act and also under DTAA and liable to tax in India. Accordingly, the grounds raised by Lucent from Ground No.2 to 5 are rejected. 53. The next issue to be considered is attribution of business profit to the PE. Vide para 4.18 of the order of the AO for the impugned year, , the AO gave a finding that payment made for software would be termed as royalty payments and necessary tax rates have been mentioned in the table. Further, considering the agreements entered by Reliance with Lucent Group the AO was of the opinion that there existed an Agency PE. Vide para 5.8 of the order the AO also considered that in case it is held that assessee s income is not taxable as royalty, the assessee s business profits have to be worked out in view of it having a PE in India. We have already held that payments made by Reliance have to be considered as royalty and accordingly the same are to be taxable as royalty only. Therefore, there is no need to consider the same as business profits. However, the issue of PE has to be decided, as existence of PE makes business profit taxable in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PE in India. It was further submitted that AO s reliance on a document i.e., subsequent restructured agreement for payment by the group companies does not indicate that any one of them is authorized to enter into contract on behalf of the assessee Lucent and further, agreement was dated 06.09.2008 does not pertain to any of the impugned assessment years. Nothing was brought on record by the Revenue that there is a PE except relying on the so called agreement which was entered on a principle to principle basis. 56. The ld. Counsel however relied on the orders that the AO as supported by DRP. It was further submitted that assessee chose not to file return after TDS was made and therefore, since proceedings are initiated under section 148 assessee can not seek any benefit in the proceedings initiated for the benefit of the revenue . He relied on the judgment of Hon'ble Bombay High Court in the case of K. Sudhakar S. Shanbhag Vs ITO (241 ITR 865) for the proposition of doctrine of election . 57. We have considered the rival submissions. In the case of Lucent Technologies International Inc. (28 SOT 98) the co-ordinate Bench at Delhi considered the facts and held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the agreement between Escotel and the assessee clearly showed that the warranty provided by the assessee-company was in relation to the defects in the hardware. That warranty clause in identical form was also found in the agreement entered into between Escotel and LTIL. Normally, the warranty for a particular product to be supplied by one person is the responsibility of that person alone, but in the instant case, that burden was also shifted to the subsidiary, being LTIL. Though LTIL had certified that it did not keep any spares on behalf of the assessee for the equipments supplied by the assessee under the contract with Escotel, yet the fact that LTIL had also assumed the responsibilities of the warranty in regard to the hardware supplied by the assess, as also the responsibility to replace the same within the period specified in the support contract between Escotel and LTIL clearly showed that the subsidiary, LTIL was also acting on behalf of the assessee. A perusal of article 5(2)(1) of the DTAA between India and the USA clearly shows that it is not only the employees through whom if services are provided, the PE is to said to come into existence, it also includes other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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