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TMI Blog2024 (9) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... essing information as required under explanation 1 to section 148 of the Act, rendering such assessment to be void ab initio and liable to be quashed. 2. The Ld. AO while issuing the notice under section 148 of the Act, 148A(b) of the Act and passing the order under section 148A(d) of the Act erred in not obtaining prior approval of the competent authority as specified under Section 151 of the Act and therefore the said notices and order are void and liable to be quashed. 3. The Ld. AO erred in making additions to the total income of the Appellant for the subject AY in respect of royalty income received by the Appellant from the non-resident licensees from sale of licensed products under the Patent Licensing Agreement as per provisions of section 9(1)(vi)(c) of the Act and Article 12(7) of India-US Double Taxation Avoidance Agreement ('India-US tax treaty). 4. The Ld. AO erred in applying the provisions of Article 12(7)(b) of India-US tax treaty for bringing to tax, the royalty income received by the Assessee from the licensees without appreciating the fact that the patents are used in a contracting state outside of India. 5. The Ld. AO erred in conducting the entire as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, QTL and the vast majority of it's patent portfolio. QTL grants licenses or otherwise provides rights to use portions of their intellectual property portfolio, which among other rights include certain rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing CDMA 2000, WCDMA, CDMA, TDD and/ or LTE standards and their derivatives. 5. The Revenue has made recurring additions in earlier and subsequent years primarily pertaining to Royalty on subscriber units and Royalty on infrastructure equipment, both of which have been held to be taxable as Royalty in India as per provisions of section 9(1)(vi)(c) of the income tax act as well as article 12(7) of the DTAA between India and USA. 6. The assessee, in the instant year, has declared taxable income on account of Royalty income earned from licensing of patents to an Indian resident amounting to Rs 6,44,83,62,431/- u/s 9(1)(vi)(b) of the Income Tax Act. 7. What is under the dispute and contention with the Revenue is the treatment by the assessee of the Royalty Income amounting to Rs 9,55,98,86,189/- received from non-resident OEMs, who have r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that it has granted patent license of subscriber units/equipments to OEMs, who manufacture them by incorporating/embedding the patents license given by the assessee. The manufactured handsets/equipments also incorporate/embed the chipsets sold by the QCT Division of the assessee, containing the CDMA technology. Whereas, the Assessing Officer has observed that since the subscriber units(handsets/equipments) containing CDMA technology/patent is ultimately used in India by subscribers, the royalty connected to such patent would be taxable in India as the OEMs selling the subscribers units/equipments have PEs in India. 12. From the facts on record, it is evident that the assessee has offered the royalty income in respect of OEMs having PEs in India. In so far as the other OEMs located outside India are concerned, the Assessing Officer has not brought any material on record to demonstrate that they have PEs in India. While treating the royalty income received from foreign OEMs as taxable in India, the Assessing Officer has applied section 9(1)(vi)(c) of the Act. On a careful perusal of the impugned assessment order, it becomes very much clear that except relying upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the effect that as long as patents are used in the manufacturing process which has taken place outside India, such royalty income cannot have tax implications in India. 15. As could be seen, the assessing officer, as discussed earlier, has laid much emphasis on the report of technical experts for the assessment year 2004-05 to 2008-09. However, the crucial issue which arises is whether that technical report can be utilized for deciding the issue in the impugned assessment years. Considering the submission of the ld counsel for the assessee that locking of CDMA subscribers units to make it India-specific or network carrier-specific was discontinued in AY 2020-11 and thereafter subscriber units available were for open market handsets not locked in any specific service provider, in our view, the Report of the technical Experts do not have any relevance in so far as impugned assessment year is concerned. In any case of the matter, the assessment order makes it clear that driven by the assessment order passed for assessment year 2012-13, the assessing officer has concluded that the royalty income received from OEM's located outside India is taxable in India. Pertinently while dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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