TMI Blog2019 (10) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the appellant was wholly or partly carried out. The business of SPCNL is not dependent on the appellant as the facts show the variance in the scope of activities nor it can be said that SPCNL is at the disposal of the appellant. Installation PE - A perusal of the Supply Contracts between the appellant and the telecom operators in India will indicate that the role of the appellant was limited to mere supply of hardware components directly from Italy. The appellant was neither responsible for, nor undertakes installation, testing and commissioning, the same being the responsibility of the telecom operators themselves, who either undertook the same themselves or had the option of appointing SPCNL. Considering these facts in the light of case of Nortel Networks India International Inc. [ 2016 (5) TMI 373 - DELHI HIGH COURT] it can be said that there was no installation PE of the appellant. Dependent agent PE - Obligation to carry out installation, commissioning and maintenance under the Services Contract was by way of separate contracts between SPCNL and the telecom operators. SPCNL cannot be regarded as DAPE of the appellant in India. Contracts between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction, 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. Such a submission was never advanced before any of the lower tax authorities - Decided in favour of assessee. - ITA No. 2810/DEL/2003 [A.Y 1998-1999], ITA No. 3147/DEL/2003 [A.Y 1999-2000], ITA No. 3148/DEL/2009 [A.Y 2000-2001], ITA No. 3149/DEL/2009 [A.Y 2001-2002], ITA No. 3150/DEL/2009 [A.Y 2002-2003], ITA No. 3012/DEL/2003 [A.Y 1998-1999] - - - Dated:- 30-9-2019 - SUDHANSHU SRIVASTAVA [JUDICIAL MEMBER] AND N.K. BILLAIYA [ACCOUNTANT MEMBER] Assessee By : Shri Deepak Chopra, Ms. Priya Tandon, Adv Department By : Shri G.K. Dhall, CIT- DR [Intll.] ORDER N.K. BILLAIYA, This is a bunch of appeals filed by the assessee for Assessment Years 1998-99 to 2002-03. The Revenue has filed cross appeal for Assessment Year 1998-99. Since common issues are involved in all the above appeals pertaining to same assessee, these are being disposed off by this common order for the sake of conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether SMCS had a business connection in terms of section 9(1)(i) of the Act? (b) Even if the answer to the above is yes, whether in absence of any permanent establishment ( PE ) of SMCS in India, could there be any tax liability on SMCS in India? (c) Even if there did exist a PE of SMCS in India, can it be stated that some activities relating to offshore supplies were carried out in India, to trigger taxability in India? (d) The admitted fact being that the activities pertaining to installation, testing and commissioning were carried out by the telecom operators in India themselves or Siemens Public Communication Network Limited (SPCNL), an Indian company, under direct and independent contracts with such telecom operators, would make any exposure on SMCS for existence of an installation PE under Article 5(2)(j) of the Double Taxation Avoidance Agreement between India and Italy (DTAA)? (e) Whether the Liaison Office (LO) opened by the appellant could be any exposure of a PE on SMCS in terms of having this LO in India? (f) Whether in absence of any employees of SMCS being involved in activities pertaining to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble High Court of Andhra Pradesh in the case of M/s Larson and Toubro Ltd. v. State of Andhra Pradesh [2015] TIOL 3055 which appears to be misplaced in as much as in that case, the contract in place did not specify that title passed outside India, whereas, in the case in hand, and as mentioned elsewhere, the title passed offshore. Further, the consideration for supply of components was also received by the appellant offshore. Even the warranty services towards replacement as well as maintenance were performed from the facilities in Italy. 14. The ld. DR pointed out that the employees of the appellant were constantly visiting India for the purpose of negotiation and signing of contracts. The assessee failed to furnish the details of visit by such employees. 15. In this context, it would be relevant to understand the dates of signing of each such contracts, which can be understood from the following chart: Sl No Particulars of the Supply Contract Contract Date 1. Agreement with BPL Mobile Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that installation, testing and commissioning, were performed either by the telecom operators themselves or by SPCNL. These certificates are placed at pages 1027- 1032 of paper book no. 4, stating that pre-network and pre-installation services as well as installation, testing and commission of the hardware components was done by SPCNL under independent contracts. In fact, the certificate issued by Usha Martin Telecom Limited, which is at page no. 1026 of paper book no. 4 states that pre-network and pre-installation services as well as installation, testing and commission of the hardware components was done by Usha Martin Telecom Limited itself. 20. It would not be out of place to mention here that SPCNL was separately being remunerated by the above telecom operators in India for the services rendered by it. In fact, in the contract between SPCNL and BPL Mobile Communications Limited, separate consideration for providing the installation and other services has specifically been provided for, which can be seem from clause 9 of the Service Contract, Exhibited at page no. 579 of paper book no. 2. 21. The ld. DR has vehemently stated that any portion of remune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the role of SMCS was not limited to supply of components from abroad. In fact, it extended to ensuring that the system was fully functional after installations. 28. Another allegation of the Revenue is that contracts between SPCNL and the telecom operators are in the same line between the appellant and the telecom operators. It is the say of the ld. DR that the appellant has parted with some of its responsibilities by getting separate contract signed between the telecom operators and SPCNL. 29. According to the ld. DR, it is not possible that any telecom operator entering into an arrangement with the appellant for supply of components would enter into an arrangement for installation with any other company. Therefore, engagement of SPCNL was dependent and conditional on supply of components by the appellant. These evidences clearly show that the appellant had local presence in the form of SPNCL in India. 30. Supporting the orders of the authorities below, the ld. DR stated that contracts involving high amounts, like in the present case, can be negotiated and concluded without any face to face interaction. 31. Referring to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts were entered into between 26.02.1997 and 15.01.1998, there was no occasion for any employee of the appellant to visit India thereafter. 35. A thorough understanding of the facts indicate that the role of the appellant was limited to mere supply of hardware components directly from Italy in such a manner that sales stood concluded, title transferred -21- and consideration received outside India. Even the appellant was required to repair or replace faulty equipment during the warranty period. But for this, the telecom operator concerned was required to send the faulty equipment to the facility of the appellant in Italy. 36. It is pertinent to understand clearly that onshore income from onshore services, i.e., undertaking installation, testing and maintenance by SPCNL and income earned by SPCNL through performance of marketing and promotional activities for the appellant were voluntarily offered to tax in India. 37. Supporting the business connection of the appellant in India, the ld. DR pointed out that customs clearance, transportation, warehousing and storage facilities were provided by the appellant in respect of components, tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which activities continued for over 6 months, the said activities constituted PE under the terms of Article 5(2)(j) of the India Italy, DTAA. 42. As mentioned elsewhere, a perusal of the Supply Contracts between the appellant and the telecom operators in India will indicate that the role of the appellant was limited to mere supply of hardware components directly from Italy. The appellant was neither responsible for, nor undertakes installation, testing and commissioning, the same being the responsibility of the telecom operators themselves, who either undertook the same themselves or had the option of appointing SPCNL. 43. Considering these facts in the light of the Hon'ble High Court of Delhi in the case of Nortel Networks India International Inc., [supra], it can be said that there was no installation PE of the appellant. WHETHER THERE IS A DEPENDENT AGENT PE 44. This is in reference to Article 5(4) of the India Italy, DTAA and the same would apply only when a non-resident is acting in India, through an agent, other than an agent of independent status on fulfilling the following conditions: (a) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well by the non-resident entity therein. Moreover, in that case, the said Indian entity had failed to establish how it was economically and otherwise independent. 50. The ld. DR has relied on the decision of the Tribunal in the case of Shanghai Electronic Group Co. Ltd. [2010] 2010 TIOL 79 which is also distinguishable on facts as in that case, the non-resident entity also indulged in enabling supervisory services in respect of erection, testing and commissioning in addition to manufacturing boilers, turbine and generator equipments. 51. It was in this context that the offshore contract pertaining to supply of equipments and the onshore contract pertaining to provision of services were inextricably linked. In addition to this, there was a clear finding that contracts were negotiated and concluded by a team of persons in India, which fact finding is missing in the case in hand. 52. The issue of chargeability of interest u/s 234B of the Act on the facts of the case in hand has been decided by the Hon'ble High Court of Delhi in favour of the assessee in the case of GE Packaged Power Inc. 373 1TR 65, wherein it has been held that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st u/s 234B of the Act. 53. Considering the facts of the case in totality, the issues mentioned at para 7 hereinabove, are decided in favour of the assessee and against the revenue. Meaning thereby, that all the appeals by the assessee are allowed and that of the revenue is dismissed. ITA No. 2810/DEL/2003 [Assessee s appeal] 54. The solitary grievance of the assessee is that the ld. CIT(A) erred in taxing income from supply of software to Indian parties as income of the appellant. 55. The quarrel is in respect of consideration received by the assessee from offshore supply of hardware components which imbibed the supply of software. The assessee was asked to show cause as to why its income or consideration received by it for licencing to use software should not be taxed as royalty. 56. The assessee made a detailed submission claiming that it has actually sold only copyrighted article. This contention of the assessee did not find any favour with the Assessing Officer who was of the firm belief that what has been charged as consideration is licensing fees for right to use software. According to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below and have also considered the decision of the Hon'ble High Court of Delhi [supra]. We find force in the contention of the ld. counsel for the assessee. Similar issue was considered and decided by the Hon'ble High Court of Delhi [supra]. The relevant findings of the Hon'ble High Court read as under: 20. The misconception that the revenue harbors stems from its flawed appreciation of a copyright license. True, copyright is not defined; yet what works are capable of copyright protection is spelt out in the Copyright Act. Sections 13 and 14 of the Copyright Act flesh out the essential ingredients that make copyright a property right. More particularly, Section 14 states as follows: 14. Meaning of copyright- For the purposes of this Act, copyright means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely :- (a) In the case of a literary, dramatic or musical work not being a computer programme- (i) to reproduce the work in any material form including the storing of it in any medium by e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sound recording to the public Explanation - For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation. Thus, Section 14 categorically provides that copyright means the exclusive right to do or authorizing the doing of any of the acts mentioned in Section 14 (a) to (e) or any ―substantial part thereof . The content of copyright in respect of computer programmes is spelt out in Section 14 (b). A joint reading of the controlling provisions of the earlier part of Section 14 with clause (b) implies that in the case of computer programs, copyright would mean the doing or authorizing the doing- in respect of work (i.e. the programme) or any substantial part thereof - (b) In the case of a computer programme,- (i) to do any of the acts specified in clause (a) (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. 21. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. Such a submission was never advanced before any of the lower tax authorities; moreover, even in Ericson (supra), a similar provision existed in the DTAA between India and Sweden. 64. Respectfully following the findings of the Hon'ble High Court [supra] we direct the Assessing Officer to delete the impugned addition. 65. In the result, all the appeals of the assessee, viz., ITA No. 2810/DEL/2003 [A.Y 1998-1999] - Allowed ITA No. 3147/DEL/2003 [A.Y 1999-2000] - Allowed ITA No. 3148/DEL/2009 [A.Y 2000-2001] - Allowed ITA No. 3149/DEL/2009 [A.Y 2001-2002] - Allowed ITA No. 3150/DEL/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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