TMI Blog2017 (1) TMI 1786X X X X Extracts X X X X X X X X Extracts X X X X ..... ide for equipment royalty. Therefore, since equipment royalty was not coming within the meaning of royalty as provided under section 9(1)(vi) r/w Explanation 2 amount received could not have been brought to tax under the Act, at least, till assessment year 2001 02 considering the provisions of section 90(2) of the Act. Whether the payment made by CPI to CPM towards user of the system can be brought into tax in India under Article 13(5)(b) of India Malaysia DTAA (Old)? - Admittedly, in the facts of the present case also, it has not been established by the Department that CPI while accessing the SAP system, exercises any control and possession thereof. Hence, the amount paid cannot be treated as royalty . More so, when the facts on record suggests that the CPI has been granted a limited access to the SAP system by establishing a communication line at its own cost for use of data available in the SAP system. In the present case, there is nothing to suggest that the CPI has obtained the right to use of any of such things as mentioned in clause (iii) for which it has paid the amount to CPM. On the contrary, it is very much evident that the payment made by CPI is for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations of the learned Commissioner (Appeals) that the assessee cannot switch its option to be taxed either under the Act or DTAA, in respect of different sources of income, on reading the provisions of section 90(2) of the Act, we do not find any such restriction imposed therein. As per the plain reading of section 90(2), the provisions of the Act shall apply to the extent they are more beneficial to the assessee. In other words, if the provision of DTAA qua a particular item of income is more beneficial to the assessee, the same has to apply. Ground no.2, is allowed. Levy of interest under section 234B and 234D - HELD THAT:- There is no dispute to the fact that the assessee is non resident company. Therefore, in terms of section 195 of the Act, liability is on the payer to deduct tax while making payments to the assessee. If the payer has failed to deduct tax at source, the assessee cannot be held liable for non payment of advance tax and consequently levy of interest under section 234B - Thus we hold that in the peculiar circumstances of the case, interest under section 234B is not chargeable. We find that the issue has been decided in Clough Engineering Ltd. [ 2011 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee a tax resident of Malaysia is engaged in the business of marketing, distribution and sale of household products, fabrics and personal care. 3. For the assessment year under consideration, the assessee filed its return of income on 2nd November 2000, declaring nil income. During the assessment proceedings, the Assessing Officer on verifying the return of income and the financial statements of the assessee found that in the relevant previous year, the assessee had received an amount of U.S. $ 3,66,000, on account of rendering of services to Colgate Palmolive India Ltd. (CPI) and a further sum of ₹ 10,59,750, on account of use of SAP system. However, the assessee had not offered the aforesaid sums as income and paid the tax. From the notes filed with the return of income, the Assessing Officer found that CPI had entered into an agreement with the assessee on 14th May 1998, for use of assessee s SAP system. As per the agreement, CPM will be charging CPI in consideration of its access to and use of SAP system as per the schedule of payment, laid down in clause (4) of the agreement. Accordingly, CPI would be paying a sum of ` U.S. $ 4.468 million to CPM over a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of seven years towards consideration for access and use of systems. He noted, as per clause (5) of the agreement, CPM would render services for enabling CPI to effectively and optimally use the SAP systems which includes training of CPI s personnel and managing the hub electronic communication between CP; US, CPM and CPI. The Assessing Officer noted, as per clause (6) of the agreement, modalities of payment to be made by CPI to CPM in consideration of rendering services have been laid down. On the basis of the aforesaid observations, the Assessing Officer called upon the assessee to explain why the payment received from CPI under the agreement should not be held to be royalty . In response to the query raised by the Assessing Officer, it was submitted by the assessee that as far as the amount received towards use of system, the assessee had opted to offer the same under the provisions of the Act and since SAP system is located outside India, provisions of section 9(1)(i) shall not apply to such payment. As far as amount received towards services rendered to CPI, it was submitted that assessee has opted to be taxed as per the provisions of treaty. Since under the India Malaysia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that it has opted to be taxed under DTAA is at variance and totally contrary to its stand taken in respect of payment received for use of SAP system. The Assessing Officer observed, the agreement between the parties being a composite agreement, both the payments cannot be separated, hence, the taxability of the amount arising to the assessee under the agreement has to be determined either under the Act or under the DTAA. The Assessing Officer referring to the definition of Royalty under Article 13(5) of Indo Malaysia treaty observed that as per section 13(5)(b), any amount received towards industrial, commercial or scientific equipment, or information concerning industrial commercial or scientific experience is in the nature of Royalty . He, therefore, observed, the amount received for use of SAP system is to be treated as Royalty under the DTAA. As far as the amount received towards rendering services, though, the Assessing Officer agreed that the Indo Malaysia treaty does not define the term FTS, however, as per Article 3(2) of the DTAA any term not defined in the DTAA shall have the meaning assigned to it under the laws of the said contracting state. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Telecommunication Co. Ltd., to conclude that as CPM is providing a process to CPI for enabling it to carry on its business in India more efficiently and profitably the amount is taxable as Royalty . Accordingly, he completed the assessment by bringing to tax the amount received by the assessee from CPI towards use of SAP system as well as services rendered. Being aggrieved of the assessment order so passed, the assessee preferred appeal before the learned Commissioner (Appeals). 5. Before the first appellate authority, assessee made elaborate submissions in support of its claim that amounts received is not taxable in India. The learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts and materials on record observed, as per the agreement between the assessee and CPI, CPM has acquired computer hardware along with the customized software system which makes possible integrated computerized recording and generation of reports of business transactions in the supply chain. He observed, the assessee has also acquired necessary infrastructure including personnel to support and maintain the SAP system. He observed, there is no dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as payment made received by the assessee from CPI on account of services rendered amounting to US $ 3,66,000 is concerned, the learned Commissioner (Appeals), after considering the submissions of the assessee, did not find merit in the same. Referring to certain clauses of agreement between the assessee and CPI, he observed that the agreement is a composite one, hence, one part cannot be separated from the rest of the agreement. Therefore, the taxability of the revenue arising to the assessee under the said agreement also has to be determined on a uniform basis. He observed, as the assessee has opted to be governed by the provisions of the Income Tax Act, 1961, in respect of consideration received for use of SAP systems, the consideration received towards rendering of services also will be governed by the provisions of the Act. He observed, the assessee cannot be allowed to make a claim that for one part of the same agreement it should be taxed under the Act and for another part it should be taxed under the DTAA. According to the learned Commissioner (Appeals), such type of pick and choose is not permitted. Having held so, the learned Commissioner (Appeals) referring to the term f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing decision: i) Motorola Inc. v/s DCIT, 95 ITD 269 (Del.) (SB); and ii) Union of India v/s Azadi Bachao Andolan., 263 ITR 706.(SC) 8. Learned Sr. Counsel submitted, even assuming the amount is taxable under Act, then the payment would be covered under Article 7 of the DTAA. He submitted, as the assessee does not have a P.E., the profit would not be taxable in India. Contesting the finding of the Departmental Authorities that it is taxable under the DTAA as equipment royalty, the learned Authorised Representative submitted, the definition of royalty in Explanation 2 to section 9(1)(vi) of the Act as applicable during the relevant assessment year did not contain equipment royalty clause. He submitted, clause (iva) of explanation-2 to sec.9(1)(vi) was inserted by Finance Act, 2001, w.e.f. assessment year 2002 03.Therefore, there is no question of applying the equipment royalty clause under the Act. He submitted, even as per clause (iva) of Explanation 2 to section 9(1)(vi). Royalty means consideration for the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB. He submitted, the equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AA. For such proposition, learned Sr. Counsel relied upon the following decisions: i) DIT v/s Nokia Networks, 358 ITR 589; ii) DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Del.); iii) CIT v/s Siemens A.G., 310 ITR 320; iv) DIT v/s Intrasoft Ltd., 264 CTR 329; v) ACIT v/s Antwerp Diamond Bank N.V., 153 ITD 391. 10. Thus, it was submitted, unless the person having access to the equipment is in control or possession thereof, such access does not tantamount to use of the equipment, hence, does not get affected by insertion of Explanation 5 to section 9(1). As far as the conclusion of the Departmental Authorities that it is a process royalty, learned Sr. Counsel submitted, clause (iii) of Explanation 2 to section 9(1)(vi) provides that royalty means consideration for use of any patent, invention, model, design, secret formula or process or trade mark or similar property. Whereas, the payment made by CPI to CPM is for the purpose of provision of standard facility which is accessed by CPM for the purpose of its business requirement and which is enabled by use of SAP systems. Therefore, such a payment cannot be regarded as payment for use of proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been reversed by the Hon'ble Delhi High Court, it cannot be considered to be laying down good law. Thus, it was submitted, the payment received by the assessee towards use of equipment cannot be treated as royalty. As far as payment received towards services rendered, learned Sr. Counsel submitted, the relevant DTAA applicable during the year under consideration did not have a clause dealing with fees for technical services. Therefore, the amount received towards services rendered will have to be assessed under Article 7, dealing generally with business profits and in the absence of a P.E. in India, the amount would not be taxable. He submitted, if income is earned by rendering services in the course of business, the business profit article will apply in the absence of FTS article in the DTAA. In support of such contention, he relied upon the following decisions: i) ACIT v/s Vice Roy Hotels Ltd., 143 TTJ 627; and ii) Mckinsey Business Consultants Sole Partners LLC MEPE v/s DCIT, 68 SOT 178. 12. The learned Departmental Representative apart from making submissions at the time of hearing of appeal has also filed a detailed note on submissions. The submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9(1)(vi) or in the DTAA, therefore, they can be read into DTAA by virtue of provisions of Article 3(2) of the DTAA. In this context, the learned Departmental Representative relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Siemens Aktiongesellschaft, [2008] 310 ITR 320 (Bom.) and submitted, amendment made to the Income Tax Act, 1961, can be read into the DTAA even in the absence of similar amendment to the DTAA. He submitted, in the decisions relied upon by the assessee, the ratio laid down by the Hon'ble Jurisdictional High Court in Siemens Aktiongesellschaft (supra), has been misinterpreted. Learned Departmental Representative submitted, software used can be embedded in the hardware, it can be shrink wrapped or it can be accessed electronically. He submitted, in assessee s own case, software is accessed electronically, therefore, the payment made towards user of the software is royalty . In this context, he relied upon the following decisions: i) CIT v/s Synopsis International Old Ltd., [2013] 212 taxman 454; ii) CIT v/s Samsung Electronics Co. Ltd. Ors, [2012] 345 ITR 494; iii) CIT v/s Wipro Ltd., [2011] 355 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of royalty . He submitted, Explanation 4, 5 and 6 to section 9(1)(vi) were brought into the statute to clarify the meaning of royalty . In this context, he referred to the explanatory note to the Finance Bill 2012. Learned Departmental Representative submitted, royalty has been defined in Article 13(5) of the old India Malaysia DTAA which is applicable for the relevant period. He submitted, the definition of royalty under the DTAA is more or less in pari materia with the definition provided in Income Tax Act, 1961. He submitted, though, the definition of royalty under the Act, appears to be broader than the definition of royalty as per DTAA, however, insofar as its applicability to computer software is concerned or the use of equipment or process, etc., is concerned, the two definitions are in pari materia. In this context, he relied upon the decision of the Hon'ble Madras High Court in Verizon Communications (Singapore) Pvt. Ltd. (supra). He submitted, since the payments made by CPI to CPM are in relation to transfer of certain rights in respect of a process or for use of any process or for use or right to use industrial, commercial or scientific literary work un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9(1)(vi). As far as the contention of the assessee that it has merely been reimbursed the expenditure incurred by it by CPI, the learned Departmental Representative submitted, assessee has not been able to establish that it had incurred the expenditure on behalf of CPI and not on its own account. He submitted, the agreement mentioned it as charges for online use of SAP system. Learned Departmental Representative submitted, the test to find out whether payment made for use of software is royalty is whether the person making payment is able to commercially exploit the software just like the owner of software and earned profit by using them. He submitted, CPI by making use of data and information obtained from SAP has used it in its business to make profit. Hence, the payment is in the nature of royalty . As far as objection of the assessee to various pleas taken by the Department with regard to applicability of amendments to section 9(1)(vi), the learned Departmental Representative submitted, it is open to the Department to raise such issues in view of the decision of National Thermal Power Corporation Ltd. v/s CIT, 229 ITR 383 (SC). Thus, the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right for Colgate to distribute the software to third parties or other legal entities other than Colgate affiliates. CP, US, in turn entered into an agency agreement with CPM (assessee) for providing services related to Information Technology (including costs of maintaining the data centre in Piscataway, USA, communication lines and development costs for new applications) to its subsidiary companies in Asia and South Pacific. The agreement provided, agent shall have no authority to act on behalf of principal for any purpose other than the purpose of invoicing and collecting from the subsidiaries for the services to be provided in terms of the agreement. The agreement strictly prohibited the agent to represent, obligate, do business or enter into contracts on behalf of principal. As far as the assessee is concerned, the role of SAP system in its business is stated to be for the following functions: 1. Material procurement: The Operations team would identify the suppliers and negotiate the price. Once final, the master data is fed into the system. Based on the same, the Purchase Order gets generated from the system and notified to the suppliers. Based on the actual supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To put it precisely, the Assessing Officer has concluded that the payment made to the assessee by CPI was for the use or right to use industrial, commercial or scientific equipment or information concerning industrial commercial or scientific experience as provided under Article 13(5)(b) of India Malaysia DTAA. Further, while rejecting assessee s contention that payment received on account of SAP system cannot be taxed in India because it is situated outside India, the Assessing Officer has concluded that the payment received by the assessee on account of user of the system by CPI is also covered by the definition of royalty under the Income Tax Act, 1961, as in terms of Explanation 2 to section 9(1)(vi), royalty includes the use of any patent, invention, model, design, secret formula or process or trademark or similar property. Of course, in course of hearing, the learned Departmental Representative has tried to enlarge the scope of Department s case by bringing in a completely new argument that the payments made were towards transfer of right in respect of any copyright, hence, it is in the nature of royalty . Keeping aside for the time being, the issue whether the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial, commercial or scientific equipment or information concerning industrial commercial or scientific experience. As could be seen, the specific finding by the Assessing Officer / Commissioner (Appeals) which is also a fact emerging out of the agreement dated 14th May 1998, between CPI and CPM that CPM has acquired computer hardware along with customized software system which is resident in CPM s facilities in Malaysia. This fact is evident from clause (3) of the agreement. The said clause also makes it clear that CPI shall have direct electronic access to the system resident in CPM for which it has to install necessary communication equipment at its own cost. Thus, it clearly emerges from the facts on record that SAP system is resident at the assessee s facilities in Malaysia and what the CPI has installed is an equipment to establish communication line to access the SAP system in CPM s facility in Malaysia. We have also noted that CPI has only got an access to the SAP system for the purpose of uploading data relating to its stock requirement. On the basis of purchase orders placed the system identifies suppliers and negotiates price. The system generates accounting entries re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts, the High Court ultimately disagreeing with the view expressed by the Tribunal, held that the amount cannot be treated as royalty under section 9(1)(vi) of the Act. Thus, as could be seen, the very basis on which the Assessing Officer held the payment received by the assessee as process royalty stands obliterated. Neither the agreement between CPI and CPM nor any other material brought on record would even remotely suggest that the assessee had in any manner transferred / leased out the control / ownership of the SAP system to CPI. Admittedly, SAP system is not developed by the assessee. It is also not the case of the department that assessee is holding Intellectual Property(IP) rights over the system. That being the case, in our view, payment made cannot be held as royalty either for use or right to use of equipment or any process. The Tribunal, Mumbai Bench, in Standard Chartered Bank (supra) while considering the fact that the amount paid is not for use or right to use a process as the processing data was done by the assessee using the system software owned by it, it cannot be said that payment made is in the nature of royalty under Article 12(3)(a) of the DTAA. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nframe computer in Australia. These cannot, therefore, be any question of payment for use of the mainframe computer. it is indeed true that the use of mainframe computer is integral to the data processing but what is important to, bear in mind is the fact that the p1yment is not for the use of mainframe computer per se, that the Indian company does not have any control overthe mainframe computer or physical access to the mainframe computer, and that the payment is for act of specialized data processing by the Australian company. Use of mainframe computer in the course of processing of data is one of the important aspects of the whole activity but that is not the purpose of, and consideration for, the impugned payment being made to Australian company. The payment, as we have observed earlier, is for the activity of specialized data processing. It is neither practicable, nor permissible, to assign monetary value to each of the segment of this economic activity and consider that amount in isolation, for the purpose of deciding character of that amount. Therefore, neither the impugned payment can be said to be towards use of, or right to use of the mainframe computer, nor is it permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee from CPI being towards transfer of rights in respect of copyright is royalty in terms of Explanation 2(v) of section 9(1)(VI). At the outset, we must mention, this is a completely new facet brought in the argument of learned Departmental Representative which is not the case of the Assessing Officer or the learned Commissioner (Appeals). Therefore, at this stage, we cannot adjudicate this issue as it requires examination of fresh facts. However, since the learned Departmental Representative has raised the issue, for the sake of completeness, we propose to deal with the same. It is the contention of the learned Departmental Representative that by permitting CPI to use the SAP system, the assessee has transferred the right to use a copyright or literary work. In this context, learned Departmental Representative referred to the provisions contained under Explanation 2(v) of section 9(1)(vi). Further, the learned Departmental Representative referring to Explanation 3 and second proviso to section 9(1)(vi) submitted computer software would come within the expression literary work, hence is to be treated as royalty . The learned Departmental Representative has further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of such literary work. In the present case, this has not been established. It is not even the case of the Revenue that any right contemplated under section 14 of the copyright Act, 1957, stood vested in this cellular operator as a consequence of article 20 of the supply contract. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . Mr. Dastur is right in this submission which is based on the commentary on the OECD Model Convention. Such a distinction has been accepted in a recent ruling of the Authority for Advance Rulings (AAR) is DassaultSystme K.K., In re[2010] 322 ITR 125(AAR); 229 CTR 105. 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 Explannation 2 below section 9(1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, paragraph (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 rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticles. Right to use a copyrighted article or product with the owner retaining his copyright is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licenceenabling the use of a copyrighted product cannot be construed asanauthority to enjoy any or all of the enumerated rights ingrained in Article 12of DTAA. Where the purpose of the licence or the transaction is only torestrict use ofthe copyrighted product for internal business purpose, itwould not be legally correct to state that the copyright itselfor right to use copyrighthas been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated bythe Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained thereinwithout any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment oftheright of usi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty rights in the software and copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Infrasoft. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries Ltd.(2016)47CCH94, also express similar view. In fact, in case of DDIT vs. Reliance Industries ltd.(supra) the Bench has observed, under the Act computer software has neither been included or deemed to be included within the scope or definition of literary work under section 9(1)(vi). Moreover, the expression computer software does not find place in the definition of royalty as contained under Article 13(5)(b) of the old India-Malaysia treaty. Therefore, even assuming that the issue raised by the learned Departmental Representative can be entertained, however, we are of the view that payment made cannot be treated as royalty for transfer of right to use a copyright or literary work as provided under section 9(1)(vi). 25. A careful reading of these decisions would reveal that all the contentions raised by the ld. DR have been dealt with and answered against the department. Therefore, we do not find it necessary to deal with the decisions relied upon by the ld. Departmental representative. 26. As far as the contention of the learned Departmental Representative that Explanation 4 to 5 of section 9(1)(vi) of the Act, can be read into the DTAA, we are unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may otherwise provide. This provision therefore clearlystates that an amendment to a treaty must be brought about by agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited. We do not however rest our decision on the principles of the VCLT, but root it in the inability of the Parliament to effect amendments to international instruments and directly and logically, the illegality of any Executive action which seeks to apply domestic law amendments to the terms of the treaty, thereby indirectly, but effectively amending the treaty unilaterally. As held in Azadi Bachao Andolan39these treaties are creations of a different process subject to negotiations by sovereign nations. The Madras High Court, in Commissioner of Income Tax v VR. S.RM. Firms Ors40 held that tax treaties are......considered to be mini legislation containing in themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries . Thus, an interpretive exercise by the Parliament cannot be taken so far as to control the meaning of a word expressly defined in a treaty. Parliament, supreme as it may be, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough an amendment to the original law, make the amendment effective. Similarly, amendments to domestic law cannot be read into treaty provisions without amending the treaty itself. On a final note, India s change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State s discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the consideration received by the assessee from CPI towards use of SAP system is not taxable in India. Ground no.1, is allowed. 29. In ground no.2, the assessee has challenged the decision of the Departmental Authorities in bringing to tax the consideration received towards service rendered by treating it as fees for technical services. 30. As discussed earlier, the agreement between the assessee and the CPI has two components. Firstly, it provides for use of SAP system by the CPI for which a quantum of consideration to be received has been specified. Further, the second component of agreement is in relation to services to be rendered by CPM to CPI towards training the personnel, etc., for using the SAP system. The Departmental Authorities are of the view that both the activities are inter dependent, hence, assessee s claim that in the absence of the term fees for technical services , in India Malaysia treaty, it cannot be brought to tax under the provisions of the Act, in view of section 90(2) of the Act. However, the Departmental Authorities have rejected such contention of the assessee. The learned Commissioner (Appeals) has observed that the assessee ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee s Appeal for A.Y. 1999 2000 The grounds raised by the assessee are reproduced below: Ground 1 The Learned Commissioner of Income tax (Appeals), XXXI, Mumbai [CIT(A)] erred in holding that the consideration received by the Appellant for the use of the SAP system is subject to tax as royalty under the Income Tax Act, 1961 ('Act'), at the rate of 20 percent on a gross basis. Ground 2 The Learned CIT (A) erred in holding that the consideration received by the Appellant in respect of the services is subject to tax as 'fees for technical services' under the Act, at the rate of 20 percent on a gross basis. Ground 3 The Learned CIT(A) erred in denying the option granted to the Appellant under Section 90 of the Act, to be taxed under provisions of the Act or the Double Tax Avoidance Agreement, as the case may be, to the extent whichever is more beneficial to the Appellant. Ground 4 The Learned CIT(A) has erred in holding that the payments received by the Appellant for the use of the system and for the rendering of services are not in the nature of reimbursement of expenses. 35. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest us 234D of the Act be levied on the interest granted under section 244A of the Act, under section 143(1) of the Act. 38. The aforesaid grounds no.1, 2 and 3, are identical to the grounds no.1, 2 and 3, raised by the assessee in its appeal being ITA no.2130/Mum./2004, for A.Y. 2000 01, which relates to chargeability to tax the amount received by the CPI towards SAP system and towards services rendered to CPI. The facts involved are also materially same. The learned Counsels appearing for both the parties adopted the arguments by them while arguing the appeal in ITA no.2130/Mum./2004. In view of the aforesaid, following our decision in ITA no.2130/Mum./2004, vide Para 14 to 17, we hold that the amount received by CPM from CPI towards use of SAP system and services rendered are not taxable in India under the Income Tax Act, 1961. Accordingly, grounds no.1, 2 and 3, are allowed. 39. In view of our decision herein above, ground no.4, having become infructuous need not be adjudicated. 40. In grounds no.5 and 6, the assessee has challenged levy of interest under section 234B and 234D of the Act. 41. The learned Authorised Representative submitted, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Departmental Authorities. 46. We have considered the submissions of the parties and perused the material available on record. We find that the issue has been decided by the Tribunal, Delhi Bench, in Clough Engineering Ltd. (supra) by holding that interest under section 234D is to be charged after excluding the interest granted under section 244A. In view of the aforesaid, we direct the Assessing Officer to charge interest under section 234D only on the principal amount and not on the interest granted under section 244A. Consequently, grounds no.5 and 6 are allowed. 47. In the result, assessee s appeal being ITA no.8311/Mum./2004 for A.Y. 2001 02 is partly allowed. ITA no.2369/Mum./2006 Assessee s Appeal for A.Y. 2002 2003 The grounds raised by the assessee are reproduced below: Aggrieved by the order passed by the Commissioner of Income tax (Appeals)-XXXI, [hereinafter referred to as ' the Learned CIT(A)'], under section 250 of the Income Tax Act, 1961 ('Act') and based on the facts and circumstances of the case, Colgate Palmolive Marketing SDN BI-JD. [hereinafter referred to as Appellant'] respectfully submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 234D. 51. Learned Authorised Representative fairly submitted, the issue has been decided against the assessee by the Hon'ble Jurisdictional High Court in Indian Oil Corporation, 254 CTR 113 (Bom.). In view of the aforesaid submissions of the learned Authorised Representative, this ground is dismissed. 52. In the result, assessee s appeal being ITA no.2369/Mum./2006 for A.Y. 2002 03 is partly allowed. ITA no.5423/Mum./2006 Assessee s Appeal for A.Y. 2003 2004 The grounds raised by the assessee are reproduced below: Aggrieved by the order passed by the Commissioner of Income-tax (Appeals) -XXXI, Mumbai [hereinafter referred to as 'CIT(A)'], under section 250 of the Income Tax Act, 1961 (Acf) and based on the facts and circumstances of the case, Colgate- Palmolive Marketing SDN BHD [hereinafter referred to as Appellant ] respectfully submits that the CIT(A) erred in disposing the appeal of the Appellant, on the following grounds. Ground 1 The CIT(A) erred in upholding the decision of the Assessing Officer who determined the total income of the Appellant at ₹ 80,266,387 instead of Rs. Nil as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced below: 1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in deleting the interest under section 234B of the Act. 2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that the refund for purposes of section 234D means only the refund of tax and does not include the interest granted under section 244A of the Act. 58. In ground no.1, the Department has challenged deletion of interest charged under section 234D. 59. This issue is similar to the issue raised in ground no.5, by the assessee in its appeal being ITA no.8311/Mum./2004, for A.Y. 2001 02. Following our decision therein, we uphold the order of the learned Commissioner (Appeals) on the issue by dismissing the ground no.1, raised by the Department. 60. In ground no.2, the Department has challenged part relief granted to the assessee in respect of interest charged under section 234D. 61. This issue involves charging of interest under section 234D on the interest granted under section 244A. This issue has been decided in favour of the assessee while deciding gr ..... 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