Raytheon Company , Gurgaon V. DCIT, Circle- 2(1), International Taxation, New Delhi

ITA 1003/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9457 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 08-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ANWESHA SAHA
• Keywords: Business income; Double taxation relief; Advance ruling; Competent authority
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: D NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.1003/DEL/2018 ASSESSMENT YEAR: 2011-12 RAYTHEON COMPANY C/O SR BATLIBOI & CO. GOLF VIEW CORPORATE TOWER SECTOR- 42, SECTOR ROAD, GURGAON-122002 VS. DCIT CIRCLE 2 (1) (1) INTERNATIONAL TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO.1067/DEL/2018 ASSESSMENT YEAR: 2011-12 DCIT CIRCLE 3 (1) (1) INTERNATIONAL TAXATION, NEW DELHI VS. RAYTHEON COMPANY C/O SRBC & ASSOCIATES GOLF VIEW CORPORATE TOWER B SECTOR- 42, SECTOR ROAD, GURGAON-122002 (APPELLANT) (RESPONDENT) APPELLANT BY MS. ANWESHA SAHA, ADVOCATE RESPONDENT BY SH. BHASKAR GOSWAMI, CIT DATE OF HEARING 29.07.2021 DATE OF PRONOUNCEMENT 30 .07.2021 ORDER PER O.P. KANT, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST ORDER DATED 27/11/2017 PASSED BY T HE LD .COMMISSIONER OF INCOME-TAX (APPEALS)-43, NEW DE LHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2011-12. BOTH T HE APPEALS BEING ARISING FROM THE SAME ORDER, BOTH WERE HARD TOGETHE R AND DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER FOR CONVENIEN CE. 2. THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL ARE REPRODUCED AS UNDER: 1. THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 43, NEW DELHI [CIT (A)] IS BAD IN LAW TO THE EXTENT PREJUDICIAL TO THE INTE REST OF THE APPELLANT. TAXATION OF CONTRACT FOR AMENDMENT TO SOFTWARE MAI NTENANCE SUPPORT CONTRACT 2. THE CIT (A) ERRED IN CONCLUDING THAT THE REVENUE S EARNED FROM AMENDMENT TO SOFTWARE MAINTENANCE CONTRACTS (IN RELATION TO MATS -BD EQUIPMENT) WERE IN THE NATURE OF FEE FOR INCLUDED SERVICES (FIS) AS PER ARTICLE 12(4) (A) OF THE INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT (INDIA-USA DTAA). 3. THE CIT (A) HAS GROSSLY ERRED IN CONCLUDING THAT SINCE THE EMBEDDED SOFTWARE IN THE MATS-BD CONTRACT WAS IN THE NATURE OF ROYALTY, HENC E THE REVENUES FROM AMENDMENT TO SOFTWARE MAINTENANCE CONTRACT PARTAKE THE NATURE OF FIS AS PER ARTICLE 12(4)(A) OF THE INDIA-USA DTAA. 4. THE CIT(A) HAS ERRED IN RELYING ON THE ADVANCE R ULING OBTAINED BY THE CUSTOMER UNDER THE SUBJECT CONTRACT TO WHICH THE APPELLANT WAS NOT A PARTY FOR TAXING THE RECEIPTS UNDER THE AMENDMENT TO SOFTWARE MAINTENANCE CONTRACT AS F IS. 5. WITHOUT PREJUDICE TO GROUND NOS 2 & 3, THE CIT (A) ERRED IN NOT APPRECIATING THAT THE REVENUES EARNED BY THE APPELLANT UNDER THE AMENDMEN T TO SOFTWARE MAINTENANCE CONTRACTS PARTOOK THE NATURE OF BUSINESS INCOME WHI CH WAS NOT TAXABLE IN INDIA WHEN THE CIT (A) HAD DELETED THE CONSTITUTION OF PE OF T HE APPELLANT IN INDIA. TAXATION OF RECEIPTS UNDER DG SERVERS AND RELATED S OFTWARE (DG SERVERS) AND SURVEILLANCE SITUATION DISPLAY DATA (S-SDD) 6. THE CIT (A) ERRED IN TREATING THE REVENUES EARNE D UNDER THE DG SERVERS AND S-SDD CONTRACT IN THE NATURE OF ROYALTY UNDER ARTICLE 12( 3)(A) OF THE INDIA-US DTAA. 7. THE CIT (A) ERRED IN NOT APPRECIATING THAT THE R EVENUES EARNED WERE ONLY ON ACCOUNT OF RIGHT TO USE OF A COPYRIGHTED ARTICLE BEING SOFTW ARE AND NO RIGHT IN THE COPYRIGHT WAS GRANTED BY THE APPELLANT TO THE INDIAN CUSTOMER. 8. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE SOFTWARE SUPPLIED IN RESPECT OF SUBJECT CONTRACT IS EMBEDDED IN HARDWARE AND IS IN THE NATURE OF HARDWARE ONLY. 9. WITHOUT PREJUDICE TO GROUND NOS 6, 7 & 8, THE C 1T (A) ERRED IN NOT APPRECIATING THAT THE REVENUES EARNED BY THE APPELLANT PARTOOK THE NA TURE OF BUSINESS INCOME WHICH WERE NOT TAXABLE IN INDIA WHEN THE CIT (A) HAD DELETED T HE CONSTITUTION OF PE OF THE APPELLANT IN INDIA. TAXATION OF CONTRACT FOR AUTOMATION SOFTWARE MAINTE NANCE SERVICES (ASMS) 10. THE CIT (A) ERRED IN CONCLUDING THAT THE REVENU ES EARNED FROM SOFTWARE MAINTENANCE UNDER ASMS CONTRACT (IN RELATION TO THE EQUIPMENT S UPPLIED UNDER DG-SERVERS CONTRACT) WERE IN THE NATURE OF FEE FOR INCLUDED SERVICES (F IS) AS PER ARTICLE 12(4) (A) OF THE INDIA- USA DTAA. 11. THE CIT (A) HAS GROSSLY ERRED IN CONCLUDING THA T SINCE THE EMBEDDED SOFTWARE IN THE DG SERVERS CONTRACT WAS IN THE NATURE OF ROYALTY, H ENCE THE REVENUES FROM AMENDMENT TO SOFTWARE MAINTENANCE CONTRACT PARTAKE THE NATURE OF FIS AS PER ARTICLE 12(4)(A) OF THE INDIA-USA DTAA. 12. ERRED IN RELYING ON THE ADVANCE RULING OBTAINED BY THE CUSTOMER UNDER OTHER CONTRACT I.E. THE AMENDMENT TO SOFTWARE MAINTENANCE CONTRACT TO WHICH THE APPELLANT WAS NOT A PARTY FOR TAXING THE RECEIPTS UNDER THE A SMS CONTRACT AS FIS. 13. WITHOUT PREJUDICE TO GROUND NOS 10, 11 & 12, T HE CIT (A) ERRED IN NOT APPRECIATING THAT THE REVENUES EARNED BY THE APPELLANT UNDER THE ASMS CONTRACT PARTOOK THE NATURE OF BUSINESS INCOME WHICH WAS NOT TAXABLE IN INDIA W HEN THE CIT (A) HAD DELETED THE CONSTITUTION OF PE OF THE APPELLANT IN INDIA. TAXATION OF RECEIPTS UNDER AIRPORT OPERATION DATA B ASE (AOBD) INTERFACE FOR DELHI & MUMBAI AIRPORTS 14. THE CIT(A) ERRED IN HOLDING THAT THE REVENUES F ROM SUPPLY OF DOCUMENTATION ARE TAXABLE AS ROYALTY INCOME UNDER ARTICLE 12 OF INDIA -USA DTAA WITHOUT APPRECIATING THAT ITS A CASE OF DOCUMENTATION WHICH HAS BEEN SUPPLIE D ALONG WITH THE EQUIPMENT, FOR THE LIMITED PURPOSES OF USE TO OPERATE THE EQUIPMENT AN D NOT FOR ANY COMMERCIAL EXPLOITATION. 15. THE CIT (A) ERRED IN NOT APPRECIATING THAT THE REVENUES EARNED WERE ONLY ON ACCOUNT OF RIGHT TO USE OF A COPYRIGHTED ARTICLE BEING DO CUMENTATION AND NO RIGHT IN THE COPYRIGHT WAS GRANTED BY THE APPELLANT TO THE INDI AN CUSTOMER. 16. WITHOUT PREJUDICE TO GROUND NOS 14 & 15, THE C IT (A) ERRED IN NOT APPRECIATING THAT THE REVENUES EARNED BY THE APPELLANT PARTOOK THE NA TURE OF BUSINESS INCOME WHICH WERE NOT TAXABLE IN INDIA WHEN THE CIT (A) HAD DELETED T HE CONSTITUTION OF PE OF THE APPELLANT IN INDIA. ALL OF THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJ UDICE AND NOTWITHSTANDING EACH OTHER. 3. THE GROUND RAISED BY THE REVENUE IN ITS APPEAL A RE REPRODUCED AS UNDER: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE CIT(A)HAS ERRED IN HOLDING THAT THE ASSESSEE HAD NO PE IN INDIA IGNORING THE FINDINGS OF FACT MARSHALED BY THE AO. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A)HAS ERRED IN HOLDING THAT RECEIPTS OF THE ASS ESSEE FROM CONTRACT FOR AUTOMATION SPARES, FROM HARDWARE REPAI R SUPPORT CONTRACT, AMENDMENT FOR HARDWARE REPAIR SUPPORT CON TRACT (2006 & 2009), WERE NOT TAXABLE IN INDIA BY HOLDING THESE TO BE 100% IN THE NATURE OF BUSINESS INCOME WHICH WAS NOT TAXABLE IN INDIA IN THE ABSENCE OF PE IGNORING THE DETAILED FINDINGS OF THE AO THAT THE ASSESSEE CONSTITUTES A PE IN INDIA. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT (A)HAS ERRED IN HOLDING THAT PART RECEIPTS OF THE A SSESSEE FROM CHENNAI CONTRACT FOR SUPPLY OF AUTOMATIONS SYSTEM, FROM RASAM CONTRACT, FROM GAGAN - FOP CONTRACT & FROM AIRPORT OPERATION DATABASE INTERFACE (AODB) BETWEEN DELHI & MUMBAI AI RPORTS, WERE NOT TAXABLE IN INDIA BY HOLDING THESE TO BE IN THE NATURE OF BUSINESS INCOME WHICH WAS NOT TAXABLE IN INDIA IN T HE ABSENCE OF PE IGNORING THE DETAILED FINDINGS OF THE AO THAT TH E ASSESSEE CONSTITUTES A PE IN INDIA. (III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT ALL RECEIPTS WERE BUSINES S INCOME, IGNORING THE RULING BY THE AAR REGARDING TAXABILITY OF ROYALTY AND FIS COMPONENTS OF THESE CONTRACTS, IN ASSESSEES OW N CASE ALBEIT ON RULING SOUGHT BY AIRPORT AUTHORITY OF INDIA VS D IT 185 TAXMANN 494. (IV) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN ALLOWING RELIEF BY DELETING ADDITIONS MADE BY THE AO TAXING PART RECEIPTS OF ASSESSEE GAGAN - FOP, AODB, D3R, RASAM AND CHENNAI CONTRACTS AS ROYALTY IN INDIA, IG NORING AOS DETAILED FINDINGS TO HOW THAT RIGHT TO USE SOFTWARE WAS CONFERRED UNDER SOFTWARE COMPONENT OF THESE CONTRACTS WHICH W AS COVERED BY ARTICLE 12(4)(A) OF THE TREATY BEING ANCILLARY T O ENJOYMENT OF RIGHT CONFERRED. (VI) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE EMBEDDED SOFTWARE COMPONE NT CANNOT BE TAXED IN ABSENCE OF PE. (VII) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) HAS ERRED IN HOLDING THAT INTEREST U/S 234B WAS NOT CHA RGEABLE IN THIS CASE BY RELYING UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF JACOBS CIVIL INCORPORATED/MITSUBISHI CORPOR ATION WHERE AS THE DEPARTMENT HAS CONTESTED THE ISSUE AND ITS REVI EW PETITION BEFORE THE APEX COURT STANDS ADMITTED. (VIII) THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 4. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAS OPTED FOR SETTLEMENT OF ITS DISPUT ES THROUGH MUTUAL AGREEMENT PROCEDURE (MAP) AND THE CENTRAL BO ARD OF DIRECT TAXES (CBDT), NEW DELHI HAS DULY ALLOWED THE APPLIC ATION OF THE ASSESSEE FOR SETTLEMENT UNDER MAP. THE LD. COUNSEL REFERRED TO THE LETTER OF THE CBDT DATED 02/03/2021 ISSUED TO THE A SSESSEE. IN VIEW OF THE SETTLEMENT OF DISPUTE UNDER THE MAP, TH E LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WISHES TO WITHDRAW ITS APPEAL. THE LD. COUNSEL ALSO SUBMITTED THAT ISSUE I N DISPUTE INVOLVED IN THE APPEAL OF THE DEPARTMENT ARE ALSO C OVERED BY THE MAP AND THEREFORE APPEAL OF THE DEPARTMENT IS ALSO RENDERED INFRUCTUOUS. 5. THE LD. DR THOUGH COULD NOT CONTROVERT THE FACT OF MAP SETTLEMENT, HOWEVER SOUGHT TIME FOR VERIFICATION OF FACTS. 6. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON RECORD . THE CONTENTION OF LETTER ISSUED BY THE CBDT DIRECTING S ETTLEMENT OF DISPUTES UNDER MAP IS REPRODUCED AS UNDER: TOTAL 21.87 9.33 AMOUNT IN INR CRORES 21.87 9.33 AMOUNT IN USD MILLIONS 3.12 1.33 *THESE PROJECTS ARE ONGOING 4. AS PER RULE 44 G (7) OF THE RULES, YOU ARE REQUE STED TO COMMUNICATE YOUR ACCEPTANCE OR NON-ACCEPTANCE OF TH E ABOVE RESOLUTION IN WRITING TO THE COMPETENT AUTHORITY IN INDIA. FURTHER, THE SAID ACCEPTANCE SHALL BE COMMUNICATED WITHIN TH IRTY DAYS OF RECEIPT OF THIS COMMUNICATION UNDER SUB-RULE (6) OF RULE 44G. 5. IN THE CASE OF ACCEPTANCE OF THE ABOVE RESOLUTION, YOU ARE ALSO REQUESTED TO ENCLOSE WITH IT THE PROOF OF WITH DRAWAL OF APPEAL, IF ANY, PENDING ON THE ISSUES THAT ARE THE SUBJECT MATTER OF THIS RESOLUTION , IN ACCORDANCE WITH SUB-RULE (8) OF RULE 44G. YOU MAY ALSO EMAIL YOU RESPONSE ON THE FOLLOW ING EMAIL ID : [e-mail] . (EMPHASIS SUPPLIED EXTE RNALLY) 7. IN COMPLIANCE TO THE DIRECTION OF THE CBDT, THE ASSESSEE HAS REQUESTED FOR WITHDRAWAL OF ITS APPEAL. ACCORDINGLY , THE APPEAL OF THE ASSESSEE IS DISMISSED AS WITHDRAWN. AS COMMON I SSUES ARE INVOLVED IN THE APPEAL OF THE REVENUE, THE APPEAL O F THE REVENUE IS ALSO RENDERED INFRUCTUOUS AND SAME IS DISMISSED, WI TH LIBERTY TO MAKE A REQUEST FOR RECALL OF THE APPEAL IN CASE ANY OF ISSUE RAISED IN THE GROUNDS OF THE APPEAL IS NOT COVERED UNDER MAP. 8. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE AND REVENUE RESPECTIVELY ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.07.2021. SD/- SD/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH JULY, 2021 NEHA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI SL. NO. PARTICULARS DATE 1. DATE OF DICTATION : 30.07.2021 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE DICTATING MEMBER: 30.07.2021 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE OTHER MEMBER: 30.07.2021 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 30.07.2021 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 30.07.2021 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAV ING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 30.07.2021 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON TH E WEBSITE OF ITAT: 30.07.2021 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: