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TMI Blog2014 (4) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the CIT(A) – thus, there was no merit in the ground – Decided against Assessee. Taxability of Income from sale of software – Article 7 of DTAA – Income taxed as Royalty – Whether the Income from the supply contract can be treated as 'Royalty' under section 9(1)(vi) of the Act - Held that:- The decision in assessee’s own case and in Director of Income-tax Versus Ericsson AB & Ericsson Radio System AB & Metapath Software International Ltd. [2011 (12) TMI 91 - Delhi High Court] followed – the payment made to the assessee was not in the nature of royalty either under the Income-Tax Act or under the DTAA – Decided against Revenue. Leviability of Interest u/s 234B of the Act – Consideration subject to TDS u/s 195 of the Act –Held that:- The decision in DIT-I, International Taxation Vs. Alcatel Lucent USA, Inc. and another [2013 (11) TMI 734 - DELHI HIGH COURT] followed - Even though there may not be any positive or direct evidence to show that the assessee did make a representation to its Indian telecom dealers not to deduct tax from the remittances, such a representation or informal communication of the request can be reasonably inferred or presumed - The Tribunal ought to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same issue in the case of M/s Gracemac Corporation dated 26.10.2010 is in favour of the department. 3. The appellant craves to add, amend modify or alter any ground of appeal at the time or before the hearing of the appeal. 3. In the appeal by the assessee, following grounds have been raised:- 1. That on the facts and in the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals)-XXIX [Ld.CIT(A)] erred in not holding that interest under section 234B of the Act is not leviable even though the entire consideration in the hands of appellant was subject to deduction of tax at source under section 195 of the Act. 1.1 That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not following the Special Bench decision in the case of Motorola Inc. vs. Dy. CIT [2005] 95 ITD 269 wherein it was held that interest under section 234B of the Act is not leviable if the consideration is subject to deduction of tax at source under section 195 of the Act. 2. That on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not excluding the sales made by appellant to Alcatel India Limited [now known a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With regard to admission of additional evidence, the assessee s submission before the CIT(A) as incorporated by the CIT(A) in paragraph Nos.31 32 of his order reads as under:- 31. The appellant on the other hand submitted that Rule 46A provides that the appellant shall not be entitled to produce before the CIT(A) any evidence other than evidence produced by him before the AO, except in the following circumstances. (a) The AO has refused to admit evidence, which ought to have been admitted. (b) The appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce. (c) The appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal. (d) The AO made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. 32. According to the appellant its case falls within the scope of clause (c) and clause (d) above. Further, the appellant was prevented from producing relevant information/details before the AO due to paucity of time as the assessment proceeding was finalized within a short spa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the revenue of the assessee. 8. We have heard the arguments of both the sides and perused relevant material placed before us. From a perusal of the assessment order, we find that the Assessing Officer asked the assessee to furnish the details of the revenue received from India. The assessee requested the Assessing Officer to take the revenue at Euro 27 Million. Thereafter, the Assessing Officer, without allowing any further opportunity, estimated the same at US$ 40 Million. In our opinion, when the Assessing Officer was not satisfied with the assessee s estimate, he should have allowed at least one more opportunity to the assessee intimating it that if it does not furnish the details, then the sale should be estimated at US$ 40 Million. Therefore, in our opinion, when before the CIT(A) the assessee furnished complete details of the sales made in India, the CIT(A) was fully justified in admitting the same as additional evidence. He allowed the opportunity to the Assessing Officer to verify such additional evidence and the CIT(A) has recorded the finding that no discrepancy in the details of sales made in India was pointed out by the Assessing Officer in the remand report. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 133A was carried out at the office premises of Alcatel Lucent India on 27.02.2009. During the course of survey proceedings photo copy of various documents was obtained and statements of senior employees involved in administration, sales and marketing were recorded. Some expatriate persons who were employees of Alcatel Group were also functioning from these offices. On the basis of information obtained during survey and post survey inquiries, notices under section 148 of the Act were issued to all Alcatel Group entities which had carried out business in India. Alcatel Group is has supplied telecommunication equipments and software to various Indian customers. 3. In the assessment orders it was held that various Alcatel Group entities have business connection as well as a permanent establishment in the form of fixed place PE, dependent agent PE and installation PE. A profit based on the sales of equipments made in India was attributed to these permanent establishments. Indian permanent establishment was also involved in making sales in some South Asian countries. A profit on account of these sales was also attributed to Indian permanent establishment. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vention by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that Contracting State concerning the taxes to which the Convention applies . Therefore, taking into account the rules of treaty interpretation it is explicitly clear that for finding out the meaning of a term reference can only be made to Income Tax Act and under no circumstances the assistant of Copyright Act or any other Act like Sales Tax Act can be taken in this regard. 10. The Revenue strongly relies on the decision of Central Economic-Administrative Court of Spain in case number 3604/2006 wherein the issue of taxation of income from software under the tax treaty between Spain and the USA has been adjudicated. In this case the taxpayers had claimed that the computer software had to be regarded as literary work under the tax treaty between Spain and the USA. The Spanish Court gave decision in the favour of the Spanish tax authorities and against the taxpayer. The Court observed that computer software is not expressly included in the definition of royalty in Article 12(3) of the treaty due to rapid development of computer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er their respective tax treaty with Finland. Copy of a summary of decision of the Supreme Administrative Court of Finland in case number KHO 2011 : 101 dated 12 December 2011 is enclosed. 12. We have carefully considered the arguments of both the sides and perused relevant material placed before us. We find that learned CIT(A) allowed the relief to the assessee following the decision of ITAT in assessee s own case for AY 1997-98 in ITA No.407/Del/2001. The ITAT had delivered the above decision following the decision of Special Bench of ITAT in the case of Motorola Inc. (supra). We find that Hon'ble Jurisdictional High Court upheld the decision of ITAT of Special Bench in the case of Motorola Inc. (supra) in the case of DIT Vs. Ericsson A.B. (supra). In the appeal by the Revenue, question No.3 proposed before the Hon'ble Jurisdictional High Court and admitted by their Lordships reads as under:- Whether in law, the learned Delhi Tribunal was justified in holding that the consideration for supply of software was not a payment by way of royalty, and, hence, was not assessable both under section 9(1)(vi) of the Double Taxation Avoidance Agreement between the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this part of the decision of the Tribunal. It must be remembered that in the note appended to the return the assessee was quite categorical in denying its liability to be assessed in India. It relied on the double taxation avoidance agreement between India and USA and pointed out that there was no permanent establishment in India. It further stated that the telecom equipments were sold outside India and the payments were also received outside India and thus the assessee did not have any taxable presence in India so as to be liable for tax on its Indian income. If this was the stand of the assessee, it is not impermissible or unreasonable to visualise a situation where, the assessee would have represented to its Indian telecom dealers not to deduct tax from the remittances made to it. On the contrary it would be surprising if the assessee did not make any such representation; such a representation would only be consistent with the assessee's stand regarding its tax liability in India. Moreover, no purpose would have been served by the assessee taking such a categorical stand regarding its tax liability in India and at the same time suffering tax deduction under Section 195(1). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. 20. Ground No.3 of the Revenue s appeal is similar to ground No.1 1.1 in assessee s appeal for AY 2003-04. For the detailed discussion therein, this ground of the Revenue s appeal is allowed and we hold that the Assessing Officer rightly charged interest under Section 234B. ITA No.2519/Del/2010 - Assessee s appeal for AY 2007-08 :- 21. Ground Nos.1 4 of the assessee s appeal are against the charging of interest under Section 234B of the Act. We have considered this issue while deciding the assessee s appeal for AY 2003- 04 and, for the detailed discussion in paragraph Nos.16 17 above, ground Nos.1, 1.1 and 4 of the assessee s appeal are rejected and we hold that the Assessing Officer rightly charged interest under Section 234B. 22. Ground No.2 of the assessee s appeal reads as under:- That on the facts and in the circumstances of the case and in law, the learned AO has erred in holding that the payments received by the assessee for supply of software is Royalty income under section 9(1)(vi) of the act as well as under Article 13 of the Double Taxation Avoidance Agreement entered into between India and France ( DTAA / tax treaty ). 23. We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 01.06.1976, which clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not the possession or control of such right, property or information is with the payer or control of such right, property or information is used directly by the payer on the location of such right, property or information is in India. 4. On the facts and in the circumstances of the case, the CIT(A) has erred in not considering the provisions of Explanation 5 to Section 9(1)(vi) of the Act inserted by the Finance Act, 2012 with effect from 01.06.1976, which clarified that the expression process includes and shall be deemed to have always included transmission by satellite (including uplinking amplification, conversion for downlinking of any signal) cable, optic fibre or by any other similar technology, whether or not such process is secret. 5. The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before the hearing of the appeal. 26. Ground Nos.1, 3 4 are with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph Nos.16 17 of this order and, for the detailed discussion therein, we reverse the order of learned CIT(A) on this issue and hold that the Assessing Officer rightly charged interest under Section 234B of the Act. Accordingly, ground No.2 of the Revenue s appeals is allowed. ITA Nos.1928/Del/2013 to 1931/Del/2013 - Revenue s appeals for AY 2003-04, 2002-03, 2003-04 2008-09 :- 31. In these appeals by the Revenue, following common grounds have been raised:- 1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition made by the AO taxing the income from supply of software as royalty, without considering that the addition as made by the AO were based on detailed analysis of information gathered during survey action u/s 133A and the case was therefore distinguishable from the relied upon case of DIT Vs. Ericsson AB decided by Hon'ble Delhi High Court in ITA No.504/2007 dated 23.12.2011 and other similar cases relied upon the ld.CIT(A). 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Hon'ble Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds have been raised:- 1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the additions made by the AO treating the considerations received by the assessee for supply of embedded software as taxable as Royalty , by holding that the such consideration received by the assessee is to be treated as consideration received for supply of goods and not as Royalty . 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the interest levied under section 234B by the AO, holding that the entire consideration in the hands of the payee was not subject to deduction of tax at source under section 195 of the Act. 35. Ground No.1 is with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the order of learned CIT(A) and reject ground No.1 of the Revenue s appeals. 36. Ground No.2 is against the charging of interest under Section 234B. This issue has also been considered by us in the case of Alcatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een raised by the Revenue :- 1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the additions made by the AO taxing the income from supply of software as royalty, without considering that the additions made by the AO were based on detailed analysis of information gathered during survey u/s 133A and the case was therefore distinguishable from the case of DIT Vs. Ericsson AB decided by the Hon'ble Delhi High Court in ITA No.504/2007 dated 23.12.2011. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in directing the AO to withdraw interest u/s 234B by relying upon the decision of Hon'ble Delhi High Court dated 30.08.2010 in the case of Jacob Civil Incorporated, without appreciating that the levy of interest u/s 234B is mandatory as held in the case of CIT Vs. Anjum Ghaswala Others reported in 252 ITR 1 (SC). 41. Ground No.1 is with regard to taxability of income from the supply of software as royalty. This issue has been considered by us in the case of Alcatel-Lucent France for AY 2003-04 in ITA No.4855/Del/2010 and, for the detailed discussion in paragraph Nos.12 to 14 of this order, we uphold the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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