TEOCO LTD, MUMBAI V. ASST DIT (IT) 2(2), MUMBAI

ITA 103/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5082 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2011-2012
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HIMANSHU SHARMA
• Keywords: Business income; Double taxation relief; Permanent establishment; Wholly owned subsidiary
• Section: 143(3); 11

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL L BENCH MUMB AI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 103/MUM/2017 (ASSESSMENT YEAR 2011-12 ) TEOCO LIMITED (FORMERLY KNOWN AS M/S TTI TEAM TELECOM INTERNATIONAL LTD.) C/O SUDIT K. PAREKH & CO. BALLARD HOUSE, ADI MARZBAN PATH, BALLARD PIER, FORT, MUMBAI-400001 PAN: AACCT5300M VS. DCIT (IT) - 2(2) ROOM NO. 1712, 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021. APPELLANT RESPONDE NT APPELLANT BY : SHRI VIJAY MEHTA WITH ANUJ KISNADWALA (AR) RESPONDENT BY : SHRI HIMANSHU SHARMA (SR. DR) DATE OF HEARING : 02.08.2018 DATE OF PRONOUNCEMEN T : 15.10.2018 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-58, MUMBAI DATED 29 .09.2016, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(1) DATED 07.02.2014 FOR ASSESSMENT YEAR 2011-1 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I. GROUND NO. I - INDIAN SUBSIDIARY CONSIDERED AS P ERMANENT ESTABLISHMENT (PE) OF THE APPELLANT 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TTI TEAM TELECOM S OFTWARE PVT. LTD. (HEREINAFTER REFERRED TO AS 'TTI INDIA') IS A DEPEN DENT AGENT PE OF THE APPELLANT COMPANY IN INDIA AND ASSESSED AN AMOUNT O F INR 39,84,177 AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE CONDITION PRESCRIBED ITA NO. 103 MUM 2017-TEOCO LIMITED 2 UNDER ARTICLE 5(5) OF INDIA - ISRAEL DOUBLE TAXATIO N AVOIDANCE AGREEMENT (DTAA) ARE NOT SATISFIED. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DISREGARDING THE FACT THAT TTI INDIA HAS INDEPENDENTLY ENTERED INTO AN AGREEMENT WITH RELIANCE COMMUNICATI ON LIMITED AND HELD TTI INDIA AS A REPRESENTATIVE OF THE APPELLANT IN I NDIA AND ACCORDINGLY PE OF APPELLANT. 1.3 THE APPELLANT CONTENDS THAT ON FACTS THE LEARNE D CIT(A) HAS ERRED IN WRONGLY INTERPRETING THE FACTS AND CLAUSES OF AGREE MENTS. 1.4 WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT CONTENDS THAT EVEN IF THE INCOME EARNED IS TAXABLE AS BUSINESS PROFITS, THEN THE EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES INCURRED IN EARNING THIS IN COME IS TO BE ALLOWED AS A DEDUCTION IN ARRIVING AT THE TAXABLE INCOME. 1.5 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) HAS ERRED IN NOT ALLOWING DEDUCTION OF SALARY EXPENSES AMOUNTING TO INR 39,84,177 FROM THE BUSINESS PROFITS AS PER THE PROVISIONS OF ARTICLE 7 READ WITH ARTICLE 5 OF DTAA. II. GROUND NO. II - REIMBURSEMENT OF EXPENSES CONSI DERED AS FEES FOR TECHNICAL SERVICES (FTS) TAXABLE AS BUSINESS PROFIT S CONSEQUENT TO HOLDING THAT INDIAN SUBSIDIARY IS A PE OF THE APPEL LANT. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING REIMBURSEMENT OF EXPENS ES AS FEES FOR TECHNICAL SERVICES (FTS) IN THE CASE WHERE TTI INDIA IS NOT C ONSIDERED AS PE OF THE APPELLANT. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT C ONTENDS THAT EVEN IF THE REIMBURSEMENTS ARE TREATED AS FTS UNDER INCOME TAX ACT, 1961 (ACT), THE SAME CANNOT BE TREATED AS FTS WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA READ WITH PROTOCOL TO THE DTAA AND ARTICLE 12 OF IN DIA-CANADA DTAA, SINCE THE SERVICES NEITHER MAKE AVAILABLE TECHNICAL KNOWL EDGE, EXPERIENCE, SKILL, ETC NOR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TE CHNICAL PLAN OR A TECHNICAL DESIGN. 2.3 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) HAS ERRED IN DISREGARDING THE ORDER OF HONORABLE IN COME TAX APPELLATE TRIBUNAL IN APPELLANTS OWN CASE FOR AY 2006-07 AND AY 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TAX RESIDENT OF ISRAEL AND 100% SUBSIDIARY OF TTI TELECOM INTERNATIONAL PVT LT D (INDIA). THE ASSESSEE IS ENGAGED IN SUPPLY OF SOFTWARE. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 30.11.2011 DE CLARING NIL ITA NO. 103 MUM 2017-TEOCO LIMITED 3 INCOME. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE HAD AGREEMENT (DATED 28.05.2003) WITH RELIANCE INFOCOM LIMITED (R IL) AND SOME OTHER PARTIES FOR SUPPLY OF SOFTWARE THROUGH SEPARATE AGR EEMENT ENTERED WITH THESE PARTIES. THE AGREEMENT INCLUDES INSTALLATION AND MAINTENANCE OF SOFTWARE THROUGH LONG TERM CONTRACT WITH REFERENCE TO DEVELOPMENT PROCESS OF SOFTWARE ENVISAGING CONTINUOUS IMPROVEME NT AND UP-GRADATION OF SOFTWARE. THE ASSESSEE EARNED RS. 39,84,177/-. T HE ASSESSEE CLAIMED THAT THE AFORESAID AMOUNT IS NOT TAXABLE IN INDIA A S IT IS NOT IN THE NATURE OF ROYALTY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 144C(3) ON 03.04.2014. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER TREATED THE RECEIPT OF RS. 39,84,1 77/- AS BUSINESS INCOME HOLDING THAT THE CONDITION PRESCRIBED UNDER ARTICLE5(5) OF INDIA- ISRAEL DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) A RE NOT SATISFIED. THE ASSESSING OFFICER WHILE TREATING THE RECEIPT AS A BUSINESS INCOME FOLLOWED THE VIEW TAKEN BY ASSESSING OFFICER IN EAR LIER ASSESSMENT YEARS. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF ASSE SSING OFFICER/TPO WAS SUSTAINED. THEREFORE, FURTHER AGGRIEVED, THE ASSESS EE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASS ESSEE SUBMITS THAT THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSES SEE BY THE TRIBUNAL IN ITA NO. 103 MUM 2017-TEOCO LIMITED 4 ASSESSEES APPEAL FOR ASSESSMENT YEARS 2006-07, 200 8-09, 2009-10 & 2010-11. IT WAS FURTHER SUBMITTED THAT BY FOLLOWING THE DECISION OF EARLIER YEAR, THE TRIBUNAL IN APPEAL FOR ASSESSMENT YEAR 20 12-13 FOLLOWED THE EARLIER YEARS DECISION. THUS, THE GROUND NO. 1.1 O F THE APPEAL IS COMPLETELY COVERED IN FAVOUR OF ASSESSEE. GROUND NO .1.2 TO 1.5 ARE IN SUPPORT OF GROUND NO. 1.1. 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF AUTHORITIES BELOW. IT WAS FURTHER SUBMITTED THAT IN APPEAL FOR ASSESSMENT YEAR 2006-07, THE ISSUE OF PERMANENT ESTABLISHMENT (PE) WAS NOT CONSIDERED. IT WAS FURTHER SUBMITTED THAT IN APPEAL FOR ASSESSMENT YEAR 2008-09, THE FINDING OF TRIBUNAL IN PARAGRAPH NO. 5 .3 ARE WRONG THAT THERE IS NO PE IN INDIA. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT SIMILAR ADDITION FOR PAYMENT OF SUPPLY OF SOFTWARE WAS MADE AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2008-09 & 2009-10 AND AGAIN IN A SSESSMENT YEAR 2010-11. ON APPEAL BEFORE THE LD. CIT(A), THE ADDIT ION WAS DELETED HOLDING THAT THE AMOUNT RECEIVED BY ASSESSEE ARE NO T IN THE NATURE OF ROYALTY AS PER ARTICLE 12 OF THE INDIA-ISRAEL DTAA IS NOT TAXABLE AS SUCH IN INDIA. 6. WE HAVE FURTHER NOTED THAT WHILE FOLLOWING THE DECI SION OF ASSESSMENT YEAR 2008-09 & 2009-10 THE TRIBUNAL ON SIMILAR GROU ND FOLLOWED THE ITA NO. 103 MUM 2017-TEOCO LIMITED 5 DECISION IN ASSESSMENT YEAR 2008-09 & 2009-10. THE CO-ORDINATE BENCH OF TRIBUNAL PASSED THE FOLLOWING ORDER: 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE AFORESAID SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIV E. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM MATERIAL ON RECORD, SIMILAR NATU RE OF PAYMENT FOR SUPPLY OF SOFTWARE WAS MADE BY THE ASSESSEE TO RELIANCE COMMU NICATION LTD. IN ASSESSMENT YEARS 200809 AND 200910 AND 201011 AN D TO INDUS TOWERS LTD. IN ASSESSMENT YEARS 200910 AND 201011. WHILE COMP LETING THE ASSESSMENTS FOR THESE ASSESSMENT YEARS THE ASSESSING OFFICER TR EATED SUCH PAYMENTS AS ROYALTY AND BROUGHT THEM TO TAX. LEARNED DRP ALSO CONFIRMED THE VIEW OF THE ASSESSING OFFICER. HOWEVER, THE TRIBUNAL WHILE DECIDING THE I SSUE IN THE APPEALS FILED BY THE ASSESSEE, TOOK NOTE OF THE ORDERS PASSED BY IT IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS AND HELD AS UNDER: 4.13. WE HAVE GONE THROUGH THE ORDERS PASSED BY TH E LOWER AUTHORITIES AS WELL AS SUBMISSIONS MADE BEFORE US BY BOTH THE SIDE S AND ALSO JUDGMENT OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE IN THE E ARLIER YEARS. THE ONLY ISSUE TO BE DECIDED BY US IS WHETHER AMOUNT RECEIVE D BY THE ASSESSEE ON ACCOUNT OF SUPPLY OF SOFTWARE TO M/S. RELIANCE INFO COM LTD.( SUBSEQUENTLY NAME CHANGED TO RELIANCE COMMUNICATION LTD.) CONSTI TUTED PAYMENT OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF DTAA BETWEEN INDIA AND ISRAEL. IT IS NOTED BY US TH AT AS DISCUSSED IN DETAIL ABOVE, THE IMPUGNED AMOUNTS HAVE BEEN RECEIVED IN P URSUANCE TO AN AGREEMENT BETWEEN THE ASSESSEE AND RELIANCE DATED 2 7TH SEPTEMBER, 2002 (ENTERED INTO THE PERIOD RELEVANT TO A.Y. 2003-04). THE AO HAS CONTENDED IN THE ORDER THAT AN AMENDMENT HAS BEEN MADE IN THE SA ID AGREEMENT VIDE SUPPLEMENTARY AGREEMENT DATED 17TH SEPTEMBER 2007, WHICH HAS BROUGHT OUT A MATERIAL CHANGE AND THAT IS WHY DECISION GIVE N BY THE TRIBUNAL IN EARLIER ORDERS NEEDS TO BE DEVIATED. WE HAVE ANALYS ED THIS CONTENTION VERY CAREFULLY. IT IS NOTED BY US THAT AGREEMENT DATED 2 7TH 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 P ASSED WHEREIN IT WAS OBSERVED, AFTER ANALYZING VARIOUS CLAUSES OF THE AG REEMENT AND POSITION OF LAW, THAT THE IMPUGNED AMOUNT DID NOT CONSTITUTE R OYALTY IN THE HANDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE SHALL N OT REPEAT THE EXERCISE ITA NO. 103 MUM 2017-TEOCO LIMITED 6 DONE BY THE COORDINATE BENCH IN ASSESSEES 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 THERE FORE ANALYSE THE NATURE AND SCOPE OF AMENDMENT AGREEMENT DATED 17TH SEPTEMB ER 2007 IN THE LIGHT OF SOME OF THE RELEVANT CLAUSES OF THE ORIGINAL AGR EEMENT DATED 27 TH 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 THEIR BEHALF WITHIN THE TERRITO RY OF INDIA AND ONLY FOR THAT PURPOSE (AND TO THE EXTENT OF THE SAME UNDER A LIMITED LINCENSE AS DEFINED HEREIN) A PERPETUAL IRREVOCABLE, NONEXCLUSI VE, ROYALTY FREE, WORLDWIDE LICENSE TO INSTALL, USE AND OPERATE AND C OPY THE SOFTWARE AND THE DOCUMENTATION LICENSED UNDER ANY APPROVED PURCHASE ORDER IN ACCORDANCE WITH THE TERMS AND CONDITIONS CONTAINED IN WIRELESS RELIANCE NETWORK WITHIN INDIA. AGREEMENT SOLELY FOR THE IMPLEMENTATION OPER ATION, MANAGEMENT AND MAINTENANCE OF THE LICENSE DOES NOT GIVE RELIANCE T ITLE TO THE SOFTWARE, OR TO ANY TRADEMARK OR COPYRIGHT IN THEM (TTI WILL BE THE OWNER OR THE LICENSE OF THE INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE). RELIANCE MAY ONLY USE THE SOFTWARE IN MACHINE READABLE FORM. RELIANCE SHALL NOT (I) REVERSE ENGINEER, DECOMPILE OR DISASSEMBLE ANY PART OF THE SOFTWARE WITHOUT THE EXPRESS PRIOR WRITTEN C ONSENT OF TTI; (II) RELIANCE SHALL NOT REMOVER, OBSCURE OR DEFACE ANY P ROPRIETARY LEGEND RELATING TO THE SOFTWARE WITHOUT TTIS PRIOR WRITTEN CONSENT, AND FURTHER, SHALL NOT DELETE ANY AND ALL SUCH PROPRIETARY LEGEN DS FOR SUCH COPIES AS ARE MADE. THE SOFTWARE IS TO BE LOCATE AND USED AT THE DESIGNATED SITE/S SPECIFIED IN THE PURCHASE ORDER ONLY. (B) THE AFOREMENTIONED LICENSES SET FORTH ABOVE ARE HEREINAFTER BE REFERRED TO AS THE SOFTWARE LICENSES. SUCH SOFTWARE LICENS ES SHALL NOT BE SOLD TRANSFERRED, ASSIGNED, SUBLICENSED BY OR USED BY OU TSOURCEES OF RELIANCE WITHOUT TTIS PRIOR WRITTEN CONSENT EXCEPT WITH RESP ECT TO (I) THE SALE OF THE WIRELESS RELIANCE NETWORK (OR ANY RELEVANT COMPONEN T THEREOF) (II) THE FINANCING OF THE WIRELESS RELIANCE NETWORK (OR ANY COMPONENT THEREOF) OR (III) THE OUTSOURCING BY RELIANCE OF ANY OPERATING OR MAINTENANCE FUNCTIONS RELATED TO THE WIRELESS RELIANCE NETWORK, UNDER THE TERMS AND CONDITIONS OF THE LIMITED LICENSE AS SPECIFIED HEREIN; OR (IV) TH E TRANSFER OR ASSIGNMENT BY RELIANCE OF THE SOFTWARE LICENSES TO A RELIANCE AFF ILIATE (OR VICE VERSA) IN CONJUNCTION WITH A TRANSFER OF A PORTION OF THE WIR ELESS RELIANCE NETWORK TO BE OPERATED IN THE TERRITORY OF INDIA ONLY, PROVIDE D THAT IN EACH SUCH CASE SPECIFIED IN (I)-(IV) ABOVE, SUCH TRANSFEREE, ASSIG NEE, OR OUTSOURCEE AGREES IN WRITING TO ABIDE BY ALL THE TERMS AND CONDITIONS SE T FORTH IN THE SOFTWARE LICENSES AND THE TTI IS INFORMED OF THE SAME IN WRI TING BY RELIANCE AND PROVIDED FURTHER THAT THE RIGHTS TRANSFERRED, ASSIG NED OR GRANTED TO OUTSOURCES, AS THE CASE MAY BE SHALL BE THOSE REASO NABLY NECESSARY, TO FULFILL THE COMMERCIAL PURPOSES OF SUCH TRANSACTION. ITA NO. 103 MUM 2017-TEOCO LIMITED 7 (C) NOTWITHSTANDING ANY STATEMENT IN THIS AGREEMENT TO THE CONTRARY, RELIANCE MAY PERMIT USE UNDER THE LIMITED LICENSE O F THE SOFTWARE (OR ANY PART THEREOF) UNDER THE TERMS OF ANY AGREEMENT BETW EEN RELIANCE AND ANY THIRD PARTY (CONTRACTOR AGREEMENT ) INCLUDING WITHO UT LIMITATION, CONSULTANT PROGRAMMERS, SYSTEM INTEGRATORS, SYSTEM MAINTAINERS , OUTSOURCING OR DISASTER RECOVERY OR OTHER SERVICE SUPPLIERS (AUTHO RIZED SUBCONTRACTORS) (RELIANCE SHALL BE ENTITLED TO GRANT SUCH AUTHORIZE D SUBCONTRACTORS A LIMITED SUB LICENSE TO USE THE SOFTWARE SOLELY TO PROVIDE S ERVICES TO RELIANCE UNDER SUCH CONTRACTOR AGREEMENT IN RESPECT OF THE SOFTWAR E (THE LIMITED LICENSE). THE LIMITED LICENSE EXPRESSLY EXCLUDES ANY RIGHT FO R THE AUTHORIZED SUB- CONTRACTORS. SUCH LIMITED LICENSE SHALL TERMINATE O N TERMINATION OF THE CONTRACTOR AGREEMENT (OR IF LATER, ON TERMINATION O F ANY OBLIGATION TO PROVIDE SERVICES CONSEQUENT UPON TERMINATION OF SUC H CONTRACTOR AGREEMENT PROVIDED THAT (I) SUCH AUTHORIZED SUBCONTRACTOR EXE CUTES A NON DISCLOSURE AGREEMENT IN BETWEEN ITSELF RELIANCE AND TTI; AND ( III) RELIANCE AGREES TO BE RESPONSIBLE FOR ANY BREACH OF THE NON DISCLOSURE AGREEMENT BY SUCH AUTHORIZED SUBCONTRACTOR. 4.14. PERUSAL OF THE AFORESAID CLAUSES CLEARLY REVE ALS THAT THE ASSESSEE WOULD CONTINUE TO REMAIN OWNER OF THE INTELLECTUAL PROPERTY RIGHTS EMBEDDED IN THE SOFTWARE AND RELIANCE WOULD BE ABLE TO USE SOFTWARE ONLY IN MACHINE READABLE FORM. RELIANCE WAS NOT PERMITTE D TO REVERSE ENGINEER, ALTER, SOFTWARE PROGRAMME OR TINKER WITH PROPRIETAR Y LEGENDS OF THE SAID SOFTWARE. THE SOFTWARE WAS PERMITTED TO BE LOCATED AND USED ONLY AT THE SITES DESIGNATED IN THE PURCHASE ORDER ISSUED BY RE LIANCE. FURTHER, SUCH SOFTWARE WAS NOT PERMITTED TO BE FREELY SOLD BY REL IANCE EXCEPT FOR STRICT USAGES FOR WIRELESS RELIANCE NETWORK ONLY, AS PERMI TTED IN THE AGREEMENT. THE AO NOTED THAT IN THE SAID AGREEMENT, THERE WERE CERTAIN CLAUSES WITH REGARD TO TRANSFER OF SOURCE CODE BY THE ASSESSEE T O RELIANCE. IT IS NOTED BY US THAT SECTION 11 OF THE SAID AGREEMENT DEALS WITH ESCROW OF SOURCE CODE WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE A ND FURTHER DISCUSSION: SECTION 11: ESCROW OF SOURCE CODE 11.1. ESCROW, CONCURRENT WITH THE EXECUTION OR THIS AGREEMENT, THE PARTIES WILL DULY EXECUTE AND DELIVER THE ESCROW AGREEMENT, AND TTI, UPON ACCEPTANCE OF THE SOFTWARE, WILL DELIVER TO THE ESC ROW AGENT A COMPLETE MASTER, REPRODUCIBLE COPY OF ALL SOURCE CODE RELATI NG TO THE SOFTWARE. TTI PROMPTLY WILL UPDATE THE SOURCE CODE IN ESCROW TO R EFLECT ALL REVISIONS, MODIFICATIONS AND ENHANCEMENTS TO THE SOFTWARE THAT ARE PROVIDED TO RELIANCE HEREUNDER. IN THE EVENT THAT THE ESCROW AG REEMENT HAS NOT BEEN EXECUTED AND THE SOURCE CODE DELIVERED TO ESCROW AG ENT WITHIN THIRTY (30) DAYS AFTER ACCEPTANCE OF THE SOFTWARE, THEN UNTIL S UCH EVENTS HAVE OCCURRED RELIANCE SHALL BE ENTITLE TO TERMINATIVE THIS AGREE MENT BY WRITTEN NOTICE PROVIDED THAT RELIANCE HAS GIVEN WRITTEN NOTICE AND DETAILS OF SUCH BREACH TO TTI AND HAS ADVISED TTI OF ITS INTENTION TO TERM INATE AND TTI HAS FAILED TO DELIVER THE SOURCE CODE TO THE ESCROW AGENT WITHIN THIRTY (30) DAYS FROM RELIANCES NOTICE THEREOF NO PAYMENT OBLIGATION WIT H RESPECT TO SUCH SOFTWARE OR NAY SUPPORT SERVICES (AND IF RELIANCE H AS PREVIOUSLY PAID ANY SUMS IN RESPECT THEREOF, TTI WILL PROMPTLY REFUND A LL SUCH SUMS TO RELIANCE). ITA NO. 103 MUM 2017-TEOCO LIMITED 8 11.2. RELEASE OF SOURCE CODE. UPON OCCURRENCE OF TH E 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 RELIANCES USE, MAINTENANCE AND SUPPORT OF THE SOFTWARE IN ACCORDANCE WITH ITS RIGHTS UNDER THIS AGREEMENT. 11.3 LICENSE; OWNERSHIP. TTI HEREBY GRANTS AND AGRE ES TO GRANT TO RELIANCE A PERPETUAL, NON-EXCLUSIVE, WORLDWIDE LICENSE TO US E, COPY, AND CREATE DERIVATIVE WORKS THE PURPOSES SPECIFIED IN SECTION 11.2 (THE DERIVATIVE WORKS). RELIANCE WILL BE THE EXCLUSIVE OWNER OF AN Y MODIFICATIONS TO OR DERIVATIVE WORKS OF THE SOURCE CODE CREATED BY OR F OR 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 T HERE 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 ENA BLING RELIANCE FOR MAINTENANCE SUPPORT OF THE SOFTWARE IN ACCORDANCE W ITH ITS RIGHTS GRANTED UNDER THE SAID AGREEMENT. THUS, SOURCE CODE WAS NOT INTENDED TO BE TRANSFERRED SO AS TO TRANSFER FULL-FLEDGED RIGHT EM BEDDED IN THE SOFTWARE BY THE ASSESSEE TO RELIANCE. IT HAS BEEN FURTHER BROUG HT TO OUR NOTICE THAT IN ANY CASE, NO ESCROW AGREEMENT HAS BEEN ENTERED INTO BETWEEN THE ASSESSEE AND RELIANCE AND THEREFORE THERE WAS NO QUESTION OF PROVIDING THE SOURCE CODE BY THE ASSESSEE TO RELIANCE. IT WAS FURTHER SU BMITTED THAT IN ANY CASE, AFORESAID AGREEMENT HAS BEEN DISCUSSED AND ANALYSED IN DETAIL BY THE TRIBUNAL IN THE ORDER PASSED FOR A.Y. 2003-04 AND 2 006-07 AND THEREAFTER ONLY DECISION HAS BEEN TAKEN WHICH SHOULD BE FOLLOW ED BY US. WE AGREE WITH THE ARGUMENT OF LD. COUNSEL THAT AS FAR AS THIS AGR EEMENT IS CONCERNED, WE ARE BOUND TO RESPECTFULLY FOLLOW THE ORDER OF THE T RIBUNAL ON THIS ISSUE. 4.16. WITH REGARD TO SUPPLEMENTARY AMENDMENT AGREEM ENT DATED 17TH SEPTEMBER 2007, IT IS NOTED BY US WITH THE ASSISTAN CE OF THE PARTIES THAT THIS AGREEMENT WAS ENTERED INTO BY THE PARTIES MAINLY FO R THE PURPOSE OF WIDENING THE SCOPE OF WIRELESS RELIANCE NETWORK FOR WHICH SOFTWARE WAS PROVIDED BY THE ASSESSEE TO RELIANCE. THE ORIGINAL AGREEMENT PERMITTED USAGES OF SOFTWARE FOR THE WIRELESS RELIANCE NETWOR K FOR THE MOBILES PHONES USING CDMA TECHNOLOGY. BUT, SUBSEQUENTLY MOBILE PHO NES BASED ON GSM TECHNOLOGY WERE ALSO INCLUDED UNDER THE AFORESAID A MENDMENT AGREEMENT. THUS, IN BRIEF, MAIN OBJECTIVE OF THE AFORESAID AME NDMENT AGREEMENT WAS TO INCLUDE MOBILE PHONES USING NEW TECHNOLOGY. 4.17. THUS, THIS SUPPLEMENTARY AGREEMENT HAS BEEN E NTERED INTO IN CONTINUATION WITH THE EARLIER AGREEMENT DATED 27 TH SEPTEMBER 2002 FOR PURCHASE OF ADDITIONAL SOFTWARE BY RELIANCE FROM TH E ASSESSEE TO BE USED IN TECHNOLOGICALLY UPDATED WIRELESS RELIANCE NETWORK ( I.E. CDMA OR GSM ETC.). ITA NO. 103 MUM 2017-TEOCO LIMITED 9 THUS, VIDE THIS SUPPLEMENTARY AGREEMENT, THOUGH SCO PE OF USAGES OF THE SOFTWARE FOR RELATIVELY WIDER RANGE OF PRODUCTS HAS BEEN INCREASED, BUT ALL OTHER TERMS AND CONDITIONS REMAINED SAME. WE DO NOT FIND ANY CHANGE MUCH LESS ANY MATERIAL CHANGE IN THE TERMS AND CONDITION S OF THE ORIGINAL AGREEMENT WHICH MAY HAVE ANY BEARING ON THE DECISIO N WHICH HAS BEEN TAKEN BY THE TRIBUNAL IN EARLIER YEARS. ONE OF THE MAIN OBJECTIONS WHICH HAD BEEN PROMINENTLY DISCUSSED BY THE LOWER AUTHORITIES IS WITH RESPECT TO TRANSFER OF SOURCE CODE BY THE ASSESSEE TO RELIANCE . IT IS NOTED BY US THAT FIRSTLY, AS DISCUSSED ABOVE, THE SOURCE CODE WAS IN TENDED TO BE PROVIDED BY THE ASSESSEE TO RELIANCE ONLY FOR THE LIMITED PURPO SE OF ENABLING IT MAINTENANCE AND SUPPORT OF SOFTWARE IN ACCORDANCE W ITH ITS RIGHTS UNDER THE SAID AGREEMENT. SECONDLY, IN ANY CASE, IT HAS BEEN INFORMED THAT THE AFORESAID ESCROW AGREEMENT WAS NEVER ENTERED INTO A ND 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 LI CENSE 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 BET WEEN 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 ESC ROW AGREEMENT AND THE SOURCE CODE OF TTIS SOFTWARE WAS NEVER DEPOSIT ED AT RCL OR WITH AN ESCROW FOR THE BENEFIT OF RCL. FOR TTI TEAM TELECOM INTERNATIONAL LIMITED EITAN NAOR CEO 4.18. THESE FACTS HAVE NOT BEEN DISPUTED BEFORE US. UNDER THESE CIRCUMSTANCES, THE ISSUE OF SOURCE CODE BECOMES ACA DEMIC. UNDER THESE CIRCUMSTANCES, WE FIND THAT THERE IS NO CHANGE IN F ACTS WHICH COULD HAVE PERMITTED OR COMPELLED US TO DEVIATE FROM DECISION OF THE TRIBUNAL RENDERED IN EARLIER YEARS. THUS, UNDER THESE CIRCUMSTANCES, WE ARE BOUND TO RESPECTFULLY FOLLOW ORDERS OF THE TRIBUNAL PASSED I N EARLIER YEARS. IT IS NOTED BY US THAT THE TRIBUNAL HAS IN ITS ORDER FOR A.Y. 2 006-07 IN ASSESSEES OWN CASE VIDE ORDER DATED 26.08.2011 IN ITA NO.3939/MUM /2010 ANALYSED ALL THE FACTS IN DETAIL AND DECIDED THIS ISSUE IN FAVOU R OF THE ASSESSEE, AFTER ANALYZING PROVISIONS OF THE ACT AS WELL AS PROVISIO NS OF TREATY AT GREAT LENGTH. RELEVANT PART OF THE ORDER IS REPRODUCED HE REUNDER: 13. IN VIEW OF THE ABOVE DISCUSSIONS, AS LONG AS T HE ASSESSEE CANNOT BE SUBJECTED TO TAX ON THE IMPUGNED RECEIPTS IN TERMS OF THE PROVISIONS OF INDO- ISRAEL TAX TREATY, THE ASSESSEE WILL NOT HAVE TAX L IABILITY IN INDIA. THE PROVISIONS OF THE IT ACT, 1961, CANNOT BE PUT INTO SERVICE IN SUCH A SITUATION, BECAUSE, AS WE HAVE NOTICED EARLIER, THESE PROVISIO NS CAN APPLY ONLY WHEN ITA NO. 103 MUM 2017-TEOCO LIMITED 10 THEY ARE MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS THE PROVISIONS OF THE APPLICABLE TAX TREATY. 14. IT IS AN ADMITTED POSITION THAT THE ASSESSEE DI D NOT HAVE ANY PE IN INDIA IN TERMS OF THE PROVISIONS OF ART. 5 OF THE TAX TRE ATY, AND, ACCORDINGLY, THE ASSESSEE CANNOT BE HELD LIABLE TO BE TAXED IN RESPE CT OF BUSINESS PROFITS, UNDER ARTICLE 7, ON SUPPLY OF SOFTWARE IN QUESTION. THE CASE OF THE REVENUE REALLY RESTS ON TAXABILITY UNDER ART. 12 WHICH PROV IDES AS FOLLOWS: 'ROYALTIES 1. ROYALTIES ARISING IN A CONTRACTING STATE AND PAI D TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES, THE TAX S O CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES. 3. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FO RMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC 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 ST ATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES ARISE, THROUGH A PE SITUATED THEREIN, OR PERFORM IN THAT OTHER STATE IN DEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND TH E RIGHT OR PROPERTY IN RESPECT OF WHICH THE ROYALTIES ARE PAID IS EFFECTIV ELY 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 CONTRACT ING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL SUBDIVISION, A LO CAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE R OYALTIES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CO NTRACTING STATE A PE OR A FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY T O PAY THE ROYALTIES WAS INCURRED, AND SUCH ROYALTIES ARE BORNE BY SUCH PE O R FIXED BASE, THEN SUCH ROYALTIES SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PE OR FIXED BASE IS SITUATED. 6. WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETWE EN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME O THER PERSON, THE AMOUNT OF THE ROYALTIES, HAVING REGARD TO THE USE, RIGHT OR INFORMATION FOR WHICH THEY ARE PAID, EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE BENEFICIAL OWNER IN THE A BSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST MENTIONED AMOUNT. IN SUCH CASE, THE EXCESS PART OF THE PAYMENTS SHALL ITA NO. 103 MUM 2017-TEOCO LIMITED 11 REMAIN TAXABLE ACCORDING TO THE LAWS OF EACH CONTRA CTING STATE, DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS CONVENTIO N.' 15. IN TERMS OF THE PROVISIONS OF ART. 12(3) OF THE INDO-ISRAEL TAX TREATY, ROYALTY IS DEFINED, FOR THE PURPOSES OF THIS TAX TR EATY, AS 'PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY 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 QUESTION THEN ARISES WHETHER A PAY MENT FOR COMPUTER SOFTWARE CANNOT BE A PAYMENT FOR USE OF OR RIGHT TO USE OF A COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CI NEMA PHOTOGRAPHIC FILM, AND, WHILE EXAMINING THIS QUESTION, IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THERE IS A SPECIFIC MENTION ABOUT THE USE 'OF' COPYRIGHT. THE ONLY OTHER CLAUSE IN WHICH PAYMENT FOR SOFTWARE COULD POSSIBLY FALL IS 'CONSIDERATION FOR USE OF, OR RIGHT TO USE OF, A 'PROCESS'. LET US EXAMINE THESE TWO ASPECTS OF THE DEFINITION OF ROYALTY UNDER THE INDIA-ISRA EL TAX TREATY. 16. AS REGARDS THE QUESTION WHETHER THE PAYMENT FOR SOFTWARE COULD BE TREATED AS PAYMENT FOR 'USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK', WE FIND THAT THIS ISS UE DIRECTLY CAME UP FOR CONSIDERATION OF A SPECIAL BENCH OF THIS TRIBUNAL I N THE CASE OF MOTOROLA INC. (SUPRA). THAT WAS A CASE IN WHICH THE SPECIAL BENCH HAD AN OCCASION TO DECIDE WHETHER PAYMENT FOR SOFTWARE AMOUNTS TO ROY ALTY, FOR THE PURPOSES OF INDIA SWEDEN TAX TREATY [(1998) 229 ITR (ST) 11] WHICH INCIDENTALLY IS THE SAME AS IN INDO-ISRAEL TAX TREATY AND WHICH ALSO DE FINES ROYALTY AS 'PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION F OR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIE NTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING I NDUSTRIAL, 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 TH E 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 A S 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 VIEWE D AS A PAYMENT FOR COPYRIGHT OR NOT IS NO LONGER RES INTEGRA. THE SPEC IAL 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 AR T. 12(3) SPECIFICALLY PROVIDE, WHAT IS LIABLE TO BE TREATED AS ROYALTY IS PAYMENT FOR 'USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC O R SCIENTIFIC WORK', AND THE CONNOTATIONS OF 'USE OF COPYRIGHT' OF A WORK ARE DI STINCT FROM THE USE OF A COPYRIGHTED ARTICLE. THE MEANING OF 'USE OF COPYRIG HT OF A WORK' CANNOT BE TREATED AS EXTENDING TO 'USE OF A COPYRIGHTED WORK' AS WELL, AS IT WOULD AMOUNT TO DOING CLEAR VIOLENCE TO THE WORDS EMPLOYE D BY THE TREATY. COPYRIGHT IS ONE THING, AND COPYRIGHTED ARTICLE IS QUITE ANOTHER THING. TO ITA NO. 103 MUM 2017-TEOCO LIMITED 12 GIVE A SIMPLE EXAMPLE, WHEN A PERSON IS USING A MUS IC COMPACT DISC, THAT PERSON IS USING THE COPYRIGHTED ARTICLE, I.E. THE P RODUCT ITSELF, AND NOT THE COPYRIGHT IN THAT PRODUCT. AS HELD BY THE SPECIAL B ENCH IN MOTOROLAS CASE (SUPRA), THE FOUR RIGHTS WHICH, IF ACQUIRED BY THE TRANSFEREE, CONSTITUTE HIM THE OWNER OF A COPYRIGHT RIGHT, AND THESE RIGHTS AR E : (I) THE RIGHT TO MAKE COPIES OF THE COMPUTER PROGRA MME FOR PURPOSES OF DISTRIBUTION TO THE PUBLIC BY SALE OR OTHER TRANSFE R OF OWNERSHIP, OR BY RENTAL, LEASE, OR LENDING. (II) THE RIGHT TO PREPARE DERIVATIVE COMPUTER PROGR AMMES BASED UPON THE COPYRIGHTED COMPUTER PROGRAMME. (III) THE RIGHT TO MAKE A PUBLIC PERFORMANCE OF THE COMPUTER PROGRAMME. (IV) THE RIGHT TO PUBLICLY DISPLAY THE COMPUTER PRO GRAMME. 17. IT IS NOT EVEN REVENUES CASE THAT ANY OF THESE RIGHTS HAVE BEEN TRANSFERRED BY THE ASSESSEE, ON THE FACTS OF THIS C ASE, AND, FOR THIS REASON, THE PAYMENT FOR SOFTWARE CANNOT BE TREATED AS PAYMENT F OR USE OF COPYRIGHT IN THE SOFTWARE. AS WE HOLD SO, WE MAY MENTION THAT IN THE CASE OF GRACEMAC (SUPRA), A CONTRARY VIEW HAS BEEN TAKEN BUT THAT CO NCLUSION IS ARRIVED AT IN THE LIGHT OF THE PROVISIONS OF CL. (V) IN EXPLN. 2 TO S. 9(1)(VI) WHICH ALSO COVERS CONSIDERATION FOR 'TRANSFER OF ALL OR ANY RI GHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK' A PROVISION WHICH IS CLEARLY LARGE R IN SCOPE THAN THE PROVISION OF ART. 12(3) OF THE INDO-ISRAEL TAX TREA TY. THE WORD 'OF' BETWEEN COPYRIGHT AND LITERARY, ARTISTIC OR SCIENTIFIC W ORK' IS ALSO MISSING IN THE STATUTORY PROVISION. THE TREATY PROVISION THAT WE A RE DEALING WITH ARE THUS CERTAINLY NOT IN PARI MATERIA WITH THIS STATUTORY P ROVISION, AND, BY THE VIRTUE OF S. 90(2) OF THE ACT, THE PROVISIONS OF INDIA ISR AEL TAX TREATY CLEARLY OVERRIDE THIS STATUTORY PROVISION. IN GRACEMAC DECI SION (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 WH ICH DOES NOT PREVAIL IN THE SITUATION BEFORE US. WE, THEREFORE, SEE NO REAS ONS TO BE GUIDED BY GRACEMAC DECISION (SUPRA). THE NEXT ISSUE THAT WE N EED 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 INSTR UCTION 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. SOFTW ARE, HAS BEEN DEFINED AS 'A SET OF INSTRUCTIONS EXPRESSED IN WORDS, CODES, S CHEMES OR IN ANY OTHER FORM, INCLUDING A MACHINE READABLE MEDIUM, CAPABLE OF CAUSING A COMPUTER TO PERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULA R 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 SOF TWAREFOR THE PROCESS OF EXECUTING THE INSTRUCTIONS IN THE SOFTWARE, OR FOR THE RESULTS ACHIEVED ON ACCOUNT OF USE OF THE SOFTWARE. TO DRAW AN ANALOGY, IT IS AKIN TO A SITUATION IN WHICH A PERSON HIRES A VEHICLE, AND THE QUESTION COULD BE AS TO WHAT DOES HE PAY FORFOR THE USE OF THE TECHNICAL KNOW-HOW ON THE BASIS OF WHICH ITA NO. 103 MUM 2017-TEOCO LIMITED 13 VEHICLE OPERATES, OR FOR THE USE OF A PRODUCT WHICH CARRIES PASSENGERS OR GOODS FROM ONE PLACE TO ANOTHER. THE ANSWER IS OBVI OUS. WHEN YOU PAY FOR USE OF VEHICLE, YOU ACTUALLY PAY FOR A PRODUCT WHIC H CARRIES THE PASSENGERS OR GOODS FROM ONE PLACE TO ANOTHER AND NOT THE TECH NICAL KNOW-HOW ON THE BASIS OF WHICH SUCH A PRODUCT OPERATES. SAME IS THE CASE WITH THE SOFTWARE, WHEN SOMEONE PAYS FOR THE SOFTWARE, HE ACTUALLY PAY S FOR A PRODUCT WHICH GIVES CERTAIN RESULTS, AND NOT THE PROCESS OF EXECU TION OF INSTRUCTIONS EMBEDDED THEREIN. AS A MATTER OF FACT, UNDER STANDA RD TERMS AND CONDITIONS FOR SALE OF SOFTWARE, THE BUYER OF SOFTWARE IS NOT EVEN ALLOWED TO TINKER WITH THE PROCESS ON THE BASIS OF WHICH SUCH SOFTWARE RUN S OR TO EVEN WORK AROUND THE TECHNICAL LIMITATIONS OF THE SOFTWARE. IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DY. CIT (2003) 78 T TJ (DEL) 489, A CO- ORDINATE BENCH OF THIS TRIBUNAL DID TAKE THE VIEW T HAT WHEN AN ASSESSEE PAYS FOR TRANSPONDER HIRE, HE ACTUALLY PAYS FOR THE PROC ESS INASMUCH AS TRANSPONDER AMPLIFIES AND SHIFTS THE FREQUENCY OF E ACH SIGNAL, AND, THEREFORE, PAYMENT FOR USE OF TRANSPONDER IS IN FAC T A PAYMENT FOR PROCESS LIABLE TO BE TREATED AS ROYALTY WITHIN MEANING OF THAT EXPRESSION UNDER EXPLN. 2 TO S. 9(1)(VI) OF THE IT ACT. HOWEVER, WHE N THIS DECISION CAME UP FOR SCRUTINY OF HONBLE DELHI HIGH COURT, IN THE CA SE REPORTED AS ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DIRECTOR OF IT (2011) 238 CTR (DEL) 233 : (2011) 51 DTR (DEL) 1 : (2011) 332 ITR 340 (DEL), THEIR LORDSHIPS, AFTER A VERY ERUDITE AND DETAILED DISCUS SION, CONCLUDED THAT 'WE ARE UNABLE TO SUBSCRIBE TO THE VIEW TAKEN BY THE TR IBUNAL IN THE IMPUGNED JUDGMENT ON THE INTERPRETATION OF S. 9(1)(VI) OF TH E ACT'. IT CANNOT, THEREFORE, BE OPEN TO US TO APPROVE THE STAND OF THE REVENUE T O THE EFFECT THAT THE PAYMENT FOR SOFTWARE IS DE FACTO A PAYMENT FOR PROC ESS. THAT IS A HYPER- TECHNICAL APPROACH TOTALLY DIVORCED FROM THE GROUND BUSINESS REALITIES. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE EX PRESSION PROCESS APPEARS IMMEDIATELY AFTER, AND IN THE COMPANY OF, EXPRESSIO NS 'ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS'. WE FIND THAT THESE EXPRESSIONS ARE USED TOGETHER IN THE TREATY A ND 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 MO RE 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 INTERPRETAT ION OF STATUTES, IN OUR CONSIDERED VIEW, HOLDS EQUALLY GOOD FOR INTERPRETAT ION OF A TREATY PROVISION. EXPLAINING THIS PRINCIPLE IN MORE GENERAL TERMS, A VERY DISTINGUISHED FORMER COLLEAGUE OF OURS HONBLE 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 I S A PRAGMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF LAW BEING ENACTED ON TH E 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 ANYTHING ELSE SHE NEEDS, HE WILL NOT NORMALLY BE UNDERSTOOD TO INCLUDE IN THE TERMS ANYTHING ELSE SHE NEEDS A NEW CAR OR AN ITEM OF JEWELLERY. THE DICTUM OF EJUSDEM GENERIS REFERS TO SIMILAR SITUATION. IT MEANS ITA NO. 103 MUM 2017-TEOCO LIMITED 14 OF THE SAME KIND, CLASS OR NATURE. THE RULE IS THAT WHEN GENERAL WORDS FOLLOW PARTICULAR AND SPECIFIC WORDS OF THE SAME NATURE, T HE GENERAL WORDS MUST BE CONFINED TO THE THINGS OF SAME KIND AS SPECIFIED. N OSCITUR A SOCIIS IS A BROADER VERSION OF THE MAXIM EJUSDEM GENERIS. A MAN MAY BE KNOWN BY THE COMPANY HE KEEPS AND A WORD MAY BE INTERPRETED WITH REFERENCE TO THE ACCOMPANYING WORDS. WORDS DERIVE COLOUR FROM THE SU RROUNDING WORDS.' 18. VIEWED IN THIS PERSPECTIVE, AND TAKING NOTE OF LOWEST COMMON FACTORS IN ALL THE ITEMS COVERED BY DEFINITION OF THE EXPRESSI ON ROYALTY IN ART. 12(3), THE PROCESS HAS TO BE IN THE NATURE OF KNOW-HOW A ND NOT A PRODUCT. IN THIS VIEW OF THE MATTER, AND IN VIEW OF HONBLE DELHI HI GH COURTS DECLINING TO UPHOLD THE CO-ORDINATE BENCHS DECISION IN THE CASE OF ASIA SATELLITE TELECOMMUNICATION CO LTD. (SUPRA), WE ARE OF THE CO NSIDERED VIEW THAT THE PAYMENT FOR SOFTWARE, BY NO STRETCH OF LOGIC, CAN B E TREATED AS A PAYMENT FOR 'A PROCESS' LIABLE TO BE TAXED AS ROYALTY. THIS IS PRECISELY WHAT WAS HELD BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SONATA INFORMATION TECHNOLOGY (SUPRA), THOUGH FOR DIFFERENT REASONS. 19. ON THIS ASPECT OF THE MATTER ALSO, GRACEMAC DEC ISION (SUPRA) HAS COME TO A DIFFERENT CONCLUSION BY OPINING THAT PAYMENT F OR SOFTWARE IS IN FACT A PAYMENT FOR A PROCESS, BUT THE VIEW SO EXPRESSED, B EING CONTRARY TO EARLIER DECISIONS OF THE OTHER CO-ORDINATE BENCHES AND IN A CCORDANCE WITH THE LAW LAID DOWN BY HONBLE ANDHRA PRADESH HIGH COURT IN T HE CASE OF CIT VS. B.R. CONSTRUCTIONS (1993) 113 CTR (AP) 1 : (1993) 2 02 ITR 2(22)(E) (AP) DOES NOT CONSTITUTE A BINDING JUDICIAL PRECEDENT. I N OUR CONSIDERED VIEW, EVEN A CO-ORDINATE BENCH DECISION, WHICH IS ADMITTE DLY CONTRARY TO EARLIER PRECEDENTS ON THAT ISSUE FROM OTHER CO-ORDINATE BEN CHES, DOES NOT BIND THE SUBSEQUENT CO-ORDINATE BENCHES. WE HAVE ALL THE RES PECT AND ADMIRATION FOR THE CO-ORDINATE BENCH DECISION, BUT, IN OUR CON SIDERED VIEW, THIS DECISION DOES NOT CONSTITUTE A BINDING JUDICIAL PRE CEDENT, AND WE LEAVE IT AT THAT. THE OTHER ASPECT OF THE MATTER IS THAT THE IS SUE OF TAXABILITY OF SOFTWARE, AS A COPYRIGHTED 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 ARGU MENTATIVE NOVELTY CANNOT UNDO OR COMPEL RECONSIDERATION OF A BINDING PRECEDENT. A DECISION DOES NOT LOSE ITS AUTHORITY MERELY BECAUSE IT WAS B ADLY ARGUED, INADEQUATELY CONSIDERED OR FALLACIOUSLY REASONED....'. THEREFORE , WHATEVER BE THE POINTS, RIGHT OR WRONG, WHICH CAN BE PUT AGAINST THE SPECIA L BENCH DECISIONS, THE SPECIAL BENCH DECISION CONTINUES TO HAVE A BINDING FORCE ON THIS DIVISION BENCH. IN OUR HUMBLE UNDERSTANDING, THE SPECIAL BEN CH DECISION IN MOTOROLAS CASE (SUPRA) BINDS US AND WE HAVE TO RES PECTFULLY FOLLOW THE SAME. RESPECTFULLY FOLLOWING THIS SPECIAL BENCH DEC ISION, AS ALSO A SERIES OF OTHER DIVISION BENCH DECISIONS ON THE SAME LINES, W E MUST APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A). 20. IN VIEW OF THE ABOVE DISCUSSIONS, RESPECTFULLY FOLLOWING SPECIAL BENCH DECISION IN MOTOROLAS CASE (SUPRA) AS ALSO A LARGE NUMBER OF DIVISION BENCH DECISIONS ON THE ISSUE, INCLUDING IN ASSESSEE S OWN CASE FOR ONE OF THE ITA NO. 103 MUM 2017-TEOCO LIMITED 15 PRECEDING ASSESSMENT YEARS, WE APPROVE THE CONCLUSI ONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 21. IN THE RESULT, THE APPEAL IS DISMISSED. 4.19. THUS, IN VIEW OF THE JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF RADHASOAMI SATSANG (SUPRA), WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR A.YS. 2003-04 & 2006-07 AND HOLD THAT THE PAYMENT RECEIVED BY THE ASSESSEE ON ACCOUNT OF SUPPLY OF SOFTWARE BY THE ASSESSEE TO RELIANCE IN PURSUANCE TO AGREEMENTS MADE BETWEEN BOTH THE PA RTIES DATED 27TH SEPTEMBER, 2002 READ WITH SUPPLEMENTARY AGREEMENT 1 7 TH SEPTEMBER, 2007 IS NOT IN THE NATURE OF ROYALTY WITHIN THE MEANIN G OF ARTICLE 12 OF DTAA BETWEEN INDIA AND ISRAEL AND THEREFORE NOT LIABLE T O TAX AS SUCH, BUT ASSESSABLE AS BUSINESS INCOME OF THE ASSESSEE SUBJE CT TO OTHER PROVISIONS OF THE ACT AND DTAA. THUS, GROUND NO. 1.1 IS DECIDED I N FAVOUR OF THE ASSESSEE. X X X X X X 8. WITH RESPECT TO APPEAL FOR A.YRS. 200910 AND A. Y. 201011, IT WAS JOINTLY STATED BY BOTH THE PARTIES THAT GROUNDS RAI SED THEREIN ARE IDENTICAL AND FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LEGAL POSITION REMAINS THE SAME. UNDER THESE CIRCUMSTANCES, THE A.O. IS DIRECT ED TO FOLLOW OUR ORDER WITH RESPECT TO EACH GROUND IN ACCORDANCE WITH OUR DIRECTIONS GIVEN IN OUR ORDER FOR A.Y. 200809, WHICH SHALL BE APPLICABLE M UTATIS MUTANDIS. 2. THERE BEING NO DIFFERENCE IN FACTS BROUGHT TO OUR N OTICE BY LEARNED DEPARTMENTAL REPRESENTATIVE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE NOT BEING IN THE NA TURE OF ROYALTY AS PER ARTICLE12 OF THE INDIAISRAEL DTAA IS NOT TAXABLE AS SUCH IN INDIA, BUT, HAS TO BE TREATED AS BUSINESS PROFIT OF THE ASSESSEE. 7. WE HAVE SEEN THAT THERE IS NO VARIANCE IN THE FACT FOR THE YEAR UNDER CONSIDERATION. THEREFORE, RESPECTFULLY FOLLOWING TH E DECISION OF CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2008-09, 2009- 10 AND 2012-13, THE INCOME EARNED BY ASSESSEE IS N OT TAXABLE IN INDIA. IN THE RESULT, GROUND NO. 1.1 OF THE APPEAL IS ALLOWED . 8. GROUND NO. 1.2 TO 1.5 IS IN SUPPORT OF GROUND NO. 1 .1, WHICH WE HAVE ALLOWED, THEREFORE, THE DISCUSSION ON THESE GROUNDS BECOME ACADEMIC. ITA NO. 103 MUM 2017-TEOCO LIMITED 16 9. GROUND NO.2 RELATES TO REIMBURSEMENT OF EXPENSES CO NSIDERED AS FEES FOR TECHNICAL SERVICES. THE LD. AR OF THE ASSESSEE FURT HER SUBMITS THAT THIS GROUND OF APPEAL IS ALSO COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 WHICH WAS FOLL OWED IN ASSESSMENT YEAR 2008-09 AND FURTHER FOLLOWED IN APP EAL FOR ASSESSMENT YEAR 2012-13. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED THAT THE CO-ORDI NATE BENCH IN APPEAL FOR ASSESSMENT YEAR 2012-13 BY FOLLOWING THE DECISI ON OF TRIBUNAL FOR ASSESSMENT YEAR 2008-09 PASSED THE FOLLOWING ORDER: 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MA TERIALS ON RECORD. AS COULD BE SEEN FROM THE FACTS ON RECORD, IN THE PRECEDING ASSESSMENT YEARS ALSO THE ASSESSING OFFICER HAS TREATED TTI IN DIA AS A DEPENDENT AGENT PE OF THE ASSESSEE. HOWEVER, WHILE DECIDING THE ISS UE IN DISPUTE, THE TRIBUNAL IN THE ORDER REFERRED TO ABOVE, HAVE HELD IN THE FO LLOWING MANNER: 5.3. WE HAVE GONE THROUGH THE ORDERS PASSED BY TH E LOWER AUTHORITIES. IT IS NOTED BY US THAT IT IS SIXTH YEAR OF THE TRA NSACTIONS; WHICH HAVE ALWAYS BEEN ACCEPTED BY THE REVENUE IN ALL THE EARL IER YEARS. IT IS FURTHER NOTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN A .Y. 2006-07 CLEARLY HELD THAT ASSESSEE HAD NO PERMANENT ESTABLISHMENT I N 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 T HE PREFERENCE OF THE DECISIONS OF THE TRIBUNAL RENDERED IN ASSESSEES OW N CASE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE ORDER OF THE TRIBUNAL OF THE EARLIER YEARS. THUS, RESPECTFULLY F OLLOWING 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. 14. CONSISTENT WITH THE AFORESAID VIEW OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE, WE HOLD THAT TTI INDIA CANNOT BE TREATED AS ASSESSEES DEPENDENT AGENT PE IN INDIA, HENCE, THE AMOUNT OF R S. 2,26,51,706 IS NOT TAXABLE AT THE HANDS OF THE ASSESSEE. THE GROUNDS ARE ALLOW ED. ITA NO. 103 MUM 2017-TEOCO LIMITED 17 11. CONSIDERING THE FACT THAT CONSISTENT VIEW HAS TAKEN BY CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, WHICH WAS FOLLOWED IN 2008-09 & 200910 AND AGAIN 2012-13, WHEREIN IT W AS HELD THAT TTI INDIA CANNOT BE TREATED AS ASSESSEES DEPENDENT AGE NT PE IN INDIA. THEREFORE, THIS GROUND OF APPEAL IS ALSO ALLOWED IN FAVOUR OF ASSESSEE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/10/2018. SD/- SD/- G.S. PANNU PA W AN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE:15.10.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR L BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI