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2012 (12) TMI 186 - AT - Income TaxForeign company engaged in supply of GSM Mobile Telecommunication system comprising of hardware and software to various cellular companies operation in India Revenue contending assessee having business connection in India and has a permanent establishment in the form of a dependent agent establishment income from licensing of software amounted to receipt of royalty Held that - It is observed that facts and circumstances of these years are the same as in the previous years. Issues are squarely covered in favour of the assessee by the judgement of the Jurisdictional High Court in the assessee s own case for the earlier Assessment Years wherein it was held that since goods were manufactured outside India and even the sale has taken place outside India. Thereby no part of the income accrued to the assessee in India. Payment received by the assessee was towards the title and GSM system of which software was an inseparable part incapable of independent use and it was a contract for supply of goods. Therefore no part of the payment therefore can be classified as payment towards royalty. Because the installation contractor is a subsidiary of the assessee holding company would not by itself give rise to a business connection. Therefore assessee did not have any business connection in India. In view of this it is not necessary to go into the issue whether the assessee had any Permanent Establishment in India or not during the relevant period in India or not.- Decided in favor of assessee. Regarding levy of interest charged u/s 234B it is held that levy of interest was not justified inasmuch as the assessee had no obligation to pay any advance tax as tax was deductible at source on its income that was chargeable to tax in India.
Issues Involved:
1. Whether the appellant has a Permanent Establishment (PE) in India under Article 5(1) of the DTAA. 2. Whether the appellant has a dependent agent under Article 5(6)(a) of the DTAA. 3. Whether the appellant has a dependent agent under Article 5(6)(c) of the DTAA. 4. Whether the appellant has a supervisory PE in terms of Article 5(3) of the DTAA. 5. Whether the appellant has a business connection in India. 6. Whether the sale of equipment is deemed to have taken place in India and software has been licensed in India. 7. Whether the revenue arising from the licensing of software to Indian clients is taxable as royalty in terms of Article 12 of the DTAA and Section 9(1)(vi) of the Act. Detailed Analysis: 1. Permanent Establishment (PE) in India: The appellant, a Swedish company, argued that it did not have a PE in India. The Assessing Officer (A.O.) and the CIT(A) held that the appellant had a fixed place of business in India through its subsidiary, ECI, constituting a PE under Article 5(1) of the DTAA. The Tribunal noted that the A.O. found no change in facts from previous years where the High Court had ruled in favor of the appellant, indicating no PE existed. 2. Dependent Agent under Article 5(6)(a) of the DTAA: The CIT(A) concluded that ECI acted as a dependent agent for the appellant, habitually concluding contracts on its behalf. However, the Tribunal found no new evidence to support this claim, noting that the facts remained consistent with previous assessments where the High Court found no dependent agent PE. 3. Dependent Agent under Article 5(6)(c) of the DTAA: Similarly, the CIT(A) held that ECI habitually secured orders for the appellant, constituting a dependent agent PE under Article 5(6)(c). The Tribunal disagreed, citing a lack of new evidence and consistency with prior rulings by the High Court. 4. Supervisory PE in terms of Article 5(3) of the DTAA: The CIT(A) also argued that the appellant had a supervisory PE under Article 5(3) due to supervisory activities in India. The Tribunal found no substantive evidence to support this claim, aligning with previous High Court decisions that did not recognize a supervisory PE. 5. Business Connection in India: The A.O. and CIT(A) claimed the appellant had a business connection in India under Section 9(1)(i) of the Act. The Tribunal noted that the High Court had previously ruled in favor of the appellant, finding no business connection, and observed no change in facts to alter this conclusion. 6. Sale of Equipment and Licensing of Software in India: The CIT(A) asserted that the sale of equipment and licensing of software occurred in India. The Tribunal found this inconsistent with the High Court's previous rulings, which determined that the transfer of property and risk occurred outside India, with no change in the relevant contractual terms. 7. Taxability of Software Revenue as Royalty: The A.O. and CIT(A) held that revenue from software licensing was taxable as royalty under Article 12 of the DTAA and Section 9(1)(vi) of the Act. The Tribunal referenced the High Court's decision, which found that software embedded in hardware did not constitute royalty. The Tribunal also noted that retrospective amendments to Section 9(1)(vi) did not affect the DTAA's provisions. Conclusion: The Tribunal found the CIT(A)'s conclusions unsupported by new evidence and inconsistent with the High Court's previous rulings. It held that the facts and circumstances remained unchanged from prior years, where the High Court had ruled in favor of the appellant. The Tribunal allowed the appeals, reversing the A.O.'s and CIT(A)'s decisions, and ruled that interest under Section 234B was not applicable, following the High Court's judgment in DIT vs. Jacobs Civil Inc.
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