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TMI Blog2018 (11) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... a cannot be treated as assessee's dependent agent PE in India, hence, the amount so received is not taxable at the hands of the assessee. The grounds are allowed. Non giving credit of the tax deducted at source - Held that:- We direct the AO to verify the factual figures and after verification allow necessary credit for the tax deducted at source. - ITA No.1910/Mum/2017 - - - Dated:- 13-11-2018 - SHRI R.C.SHARMA, AM AND SHRI PAWAN SINGH, JM For The Assessee : Shri Anuj Kisnadwala For The Revenue : Shri Manoj Kumar ORDER PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of DRP-2, Mumbai dated 29/11/2016 for A.Y.2013-14 in the matter of order passed u/s.144C (13) r.w.s. 143(3) of the Income Tax Act, 1961, in pursuance of the directions of the Disputes Resolution Panel u/s.144C(5) of the IT Act. 2. Assessee is aggrieved for treating the consideration received from Indus Tower Ltd., for supply of software as royalty and for considering Indian subsidiaries as permanent establishment of the assessee. 3. Rival contentions have been heard and record perused. Facts in brief are that assessee is a company incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange and that is why decision given by the Tribunal in earlier orders needs to be deviated. We have analysed this contention very carefully. It is noted by us that agreement dated 27th September 2002 has been analysed by the Tribunal twice in two separate orders i.e. for A.Y. 2003-04 and A.Y. 2006-07 and detailed orders were passed wherein it was observed, after analyzing various clauses of the agreement and position of law, that the impugned amount did not constitute royalty' in the hands of the assessee. Under these circumstances, we shall not repeat the exercise done by the coordinate bench in assessee's own case, nor shall we like to modify the conclusion drawn by the coordinate bench as far as analysis of the original agreement is concerned. We shall therefore analyse the nature and scope of amendment agreement dated 17th September 2007 in the light of some of the relevant clauses of the original agreement dated 27th September 2002, which are reproduced hereunder: ―License Grant. a) TTI hereby grants to Reliance and its affiliates (and to any third party to whom Reliance or its Affiliates have contracted to operate the Wireless Reliance Network on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided further that the rights transferred, assigned or granted to outsources, as the case may be shall be those reasonably necessary, to fulfill the commercial purposes of such transaction. (c) Notwithstanding any statement in this Agreement to the contrary, Reliance may permit use under the limited license of the Software (or any part thereof) under the terms of any agreement between reliance and any third party (Contractor Agreement ) including without limitation, consultant programmers, system integrators, system maintainers, outsourcing or disaster recovery or other service suppliers (Authorized Subcontractors) (Reliance shall be entitled to grant such Authorized subcontractors a limited sub license to use the software solely to provide services to Reliance under such contractor agreement in respect of the software (the limited License). The limited License expressly excludes any right for the Authorized Sub-contractors. Such limited License shall terminate on termination of the contractor Agreement (or if later, on termination of any obligation to provide services consequent upon termination of such contractor agreement provided that (i) such authorized Subcontractor e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Source Code. Upon occurrence of the conditions described in the Escrow Agreement (each, a ―Release condition‖) the Source Code placed in escrow will be delivered to Reliance for us, copying in connection with Reliance's use, maintenance and support of the software in accordance with its rights under this Agreement. 11.3 License; Ownership. TTI hereby grants and agrees to grant to Reliance a perpetual, non-exclusive, worldwide license to use, copy, and create derivative works the purposes specified in Section 11.2 (the Derivative Works‖). Reliance will be the exclusive owner of any modifications to or Derivative Works of the Source Code created by or for Reliance under this terms and circumstances Section 11.‖ 4.15. It was contended by the Ld. Counsel that the lower authorities mislead themselves by making incomplete reading of the said clause with regard to source code. It was contended by Ld. Counsel that there was no absolute transfer of source code of the assessee to Reliance. In fact, source code was meant to be provided for the limited purpose of enabling Reliance for maintenance support of the software in accordance with its rights granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed above, the source code was intended to be provided by the assessee to Reliance only for the limited purpose of enabling it maintenance and support of software in accordance with its rights under the said agreement. Secondly, in any case, it has been informed that the aforesaid Escrow Agreement was never entered into and therefore, there was no question of providing any source code by the assessee to Reliance in this regard. The assessee had submitted on record a copy of declaration which reads as under: ―Declaration To whomsoever it may concern 1. Exhibit C of the Original Software Supply and License Agreement (SSLA) dated 27th September 2002 executed between TTI Team Telecom International Ltd. (TTI) and Reliance Infocomm Ltd. (now known as Reliance Communications Ltd. (RCL) has never been executed. 2. The original SSLA dated 27th September, 2002 between TTI and RCL contained a clause for the transfer of source code to RCL in an escrow account. However, TTI and RCL did not enter any Escrow Agreement and the source code of TTI's software was never deposited at RCL or with an escrow for the benefit of RCL. For TTI Team Telecom International Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ret formula or process, or for information concerning industrial, commercial or scientific experience. 4. The provisions of paras 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a PE situated therein, or perform in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such PE or fixed base. In such case, the provisions of art. 7 or art. 15, as the case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a PE or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such PE or fixed base, then such royalties shall be deemed to arise in the State in which the PE or fixed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y copyright of literary, artistic or scientific work including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience . The Special Bench, after a very erudite discussion on various facets of the issue before them, concluded that we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the assessee in respect of the software cannot, therefore, be considered as royalty either under the IT Act or the DTAA . Right now we are only concerned with the provisions of the tax treaty, and we have noticed that the provisions of tax treaty as before the Special Bench are exactly the same as before us in this case. The issue, therefore, as to whether payment for supply of software can be viewed as a payment for copyright or not is no longer res integra. The Special Bench has decided this issue in favour of the assessee, and the views so expressed by the Special Bench, being from a higher forum than this Division Bench, are binding on us. In any case, as the provisions of art. 12(3) specifically provide, what is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racemac decision (supra), the Co-ordinate Bench was of the view that the provisions of the applicable tax treaty and the IT Act are identical --a position which does not prevail in the situation before us. We, therefore, see no reasons to be guided by Gracemac decision (supra). The next issue that we need to consider is whether a payment for software can be said to be a payment for process as a computer program is nothing but a set of instruction lying in the passive state and this execution of instructions is a process' or a series of processes'. No doubt, in terms of the provisions of s. 2(ffc) of the Indian Copyright Act, 1957, a computer program, i.e. software, has been defined as a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result , but the moot question is as to what is that a customer pays for when he buys, or to put it in technical terms obtains licence to use' the software--for the process of executing the instructions in the software, or for the results achieved on account of use of the software. To dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these expressions are used together in the treaty and as it is well- settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. This principle of interpretation of statutes, in our considered view, holds equally good for interpretation of a treaty provision. Explaining this principle in more general terms, a very distinguished former colleague of ours Hon'ble Shri M.K. Chaturvedi, had, in an article Interpretation of Taxing Statutes' (AIFTP Journal: Vol. 4 No. 7, July, 2002, at p. 7), put it in his inimitable words as follows : Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on commonsense approach. Suppose a man tells his wife to go out and buy bread, milk or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed article, is directly covered by a Special Bench of this Tribunal and the said decision, coming from a Bench of larger strength, prevails over the Division Bench decision. As laid down by the apex Court in the case of Ambika Prasad Mishra vs. State of UP AIR 1980 SC 1762 (p. 1764 of AIR 1980 SC ) every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent. A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned.... . Therefore, whatever be the points, right or wrong, which can be put against the Special Bench decisions, the Special Bench decision continues to have a binding force on this Division Bench. In our humble understanding, the Special Bench decision in Motorola's case (supra) binds us and we have to respectfully follow the same. Respectfully following this Special Bench decision, as also a series of other Division Bench decisions on the same lines, we must approve the conclusions arrived at by the CIT(A). 20. In view of the above discussions, respectfully following Special Bench decision in Motorola's case (supra) as also a large number of Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in assessee's own case in A.Y. 2006-07 clearly held that assessee had no permanent establishment in India. It is further noted that TTI India has entered into the agreement on independent basis. No facts have been discussed by the Ld. CIT(A) to show that how the judgment of Rolls Royce PLC was applicable in the preference of the decisions of the Tribunal rendered in assessee's own case. Under these circumstances, we do not find any reason to deviate from the order of the Tribunal of the earlier years. Thus, respectfully following the order of the Tribunal for A.Y. 2006- 07, we decide this issue in favour of the assessee. Thus, ground no.2 is allowed. 8. Consistent with the aforesaid view of the Co-ordinate Bench in assessee's own case, we hold that TTI India cannot be treated as assessee's dependent agent PE in India, hence, the amount so received is not taxable at the hands of the assessee. The grounds are allowed. 9. Next grievance of assessee relates to not giving credit of the tax deducted at source amounting to ₹ 68,78,174/- considering the facts and circumstances of the case, we direct the AO to verify the factual figures and after ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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