M/s. Nortel Networks India International Inc., Gurgaon V. DDIT, New Delhi

ITA 1087/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4272 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T M SHIV KUMAR
• Keywords: Related party transaction; Capital asset; Double taxation relief; Permanent establishment; Wholly owned subsidiary; Condonation of delay
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SH. N.K.SAINI, ACCOUNTANT MEMBER AND SH.K.N.CHARRY, JUDICIAL MEMBER ITA NOS. 3313 TO 3315/DEL/2012 (ASSESSMENT YEARS: 2006-07 TO 2007-08, 2009-10 ) ITA NO. 1087/DEL/2014 (ASSESSMENT YEAR: 2010-11 ) C.O.NOS.21 TO 23/DEL/2017 (IN ITA NOS. 3313 TO 3315/DEL/2012) (ASSESSMENT YEARS: 2006-07 TO 2007-08, 2009-10 ) C.O.NO.-24/DEL/2017 (IN ITA NO. 1087/DEL/2014) (ASSESSMENT YEAR: 2010-11 ) NORTAL NETWORKS INDIA INTERNATIONAL INC., C/O-M/S SRBC & ASSOCIATES, GOLF VIEW CORPORATE TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON-122002. PAN-AACCN2995E VS ADIT, CIRCLE-2(1), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) NORTAL NETWORKS INDIA INTERNATIONAL INC., C/O-M/S SRBC & ASSOCIATES, GOLF VIEW CORPORATE TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON-122002. PAN-AACCN2995E VS DDIT, CIRCLE-2(1), NEW DELHI. (APPELLANT) (RESPONDENT) ADIT, CIRCLE-2(1), INTERNATIONAL TAXATION, NEW DELHI. VS NORTAL NETWORKS INDIA INTERNATIONAL INC., C/O-M/S SRBC & ASSOCIATES, GOLF VIEW CORPORATE TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON-122002. PAN-AACCN2995E (APPELLANT) (RESPONDENT) DDIT, CIRCLE-2(1), NEW DELHI. VS NORTAL NETWORKS INDIA INTERNATIONAL INC., C/O-M/S SRBC & ASSOCIATES, GOLF VIEW CORPORATE TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON-122002. PAN-AACCN2995E (APPELLANT) (RESPONDENT) ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 2 APPELLANT BY SH. DEEPAK CHOPRA, ADV. & MS. MANASVINI BAJPAI, ADV. RESPONDENT BY SH. T.M.SHIV KUMAR, CIT DR DATE OF HEARING 07.09.2017 DATE OF PRONOUNCEMENT 26.09.2017 ORDER PER BENCH ASSESSEE FILED ITA NOS.3313 TO 3315/DEL/2012 & 1087/DEL/2014 WHEREAS THE REVENUE FILED C.OS NOS.-2 1 TO 24/DEL/2017 CHALLENGING THE ORDERS OF THE LD.CIT(A) CONFIRMING THE ORDERS OF THE LD.AO IN RESPECT OF AYS 2006-07 TO 20 10-11, THE RESPECTIVELY. THIS BATCH OF MATTERS INVOLVE COMMON FACTS AND RAISE COMMON QUESTIONS OF FACT AND LAW, AND HENCE FOR THE SAKE OF CONVENIENCE THE SAME ARE BEING ADDRESSED TOGETHER A ND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. BRIEFLY STATED FACTS RELEVANT FOR THE DISPOSAL O F THIS MATTER ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED ON 07. 06.2002 UNDER THE NAME AND STYLE OF NORTEL NETWORKS INDIA INTERNA TIONAL INC. (NNIII) UNDER THE LAWS APPLICABLE IN THE STATE OF DELWARE, USA AND IS A TAX RESIDENT OF USA. ASSESSEE IS ENGAGED IN T HE BUSINESS OF SUPPLYING ADVANCED NETWORKING/TELECOM EQUIPMENT TO CUSTOMERS IN ASIA PACIFIC REGION. THE ASSESSEE IS A STEP-DOWN SUBSIDIARY OF NORTEL NETWORKS LTD. CANADA, AND IS WHOLLY HELD BY NORTEL NETWORK INC. WHICH IN TURN ALSO HAS AN INDIRECT SUBSIDIARY IN INDIA, NAMELY, ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 3 NORTEL NETWORKS INDIA PVT. LTD. (NORTEL INDIA). NOR TEL LO IS THE LIAISON OFFICE OF NORTEL CANADA IN INDIA. IN THE R ELEVANT YEAR UNDER CONSIDERATION, RELIANCE REQUIRED AN INDIAN COMPANY TO BID FOR CONTRACT FOR SUPPLY OF OPTICAL HARDWARE AND PROVISI ON OF RELATED INSTALLATION AND COMMISSIONING SERVICES, AND NORTEL INDIA HAD ENTERED INTO SUCH A CONTRACT WITH RELIANCE. WHILE R ETAINING THE OPTICAL SERVICES CONTRACT REMAINED WITH THEM, NORTE L INDIA SUBSEQUENTLY ASSIGNED ALL ITS RIGHTS, ENTITLEMENTS, COVENANTS AND OBLIGATIONS UNDER THE OPTICAL HARDWARE SUPPLY CONTR ACT TO NNIII UNDER THE ASSIGNMENT AND ASSUMPTION CONTRACT, FOR T HE PERFORMANCE OF WHICH, NORTEL CANADA PROVIDED GUARAN TEE. EQUIPMENT SUPPLIED TO RELIANCE WAS SOURCED FROM NOR TEL CANADA AND NORTEL IRELAND I.E, MANUFACTURED BY NORTEL CANA DA AND NORTEL IRELAND, AND UNDER THE AGREEMENT, RELIANCE PLACED O RDERS DIRECTLY ON THE ASSESSEE, AND ALSO MADE ALL THE PAYMENTS FOR EQUIPMENT SUPPLIED DIRECTLY TO THE ASSESSEE. 3. ORIGINAL ASSESSMENT IN RESPECT OF THE AY 2006-07 AND 2007- 08 WAS COMPLETE, HOWEVER, PLACING RELIANCE UPON THE EARLIER YEARS PROCEEDINGS THE MATTERS WERE REOPENED THE ASSESSMEN TS IN RESPECT OF THOSE YEARS AND ASSESSMENT U/S 143(3) WAS DONE I N RESPECT OF OTHER TWO YEARS. FOR ALL THESE ASSESSMENT YEARS UND ER CONSIDERATION AND HELD THAT THE ASSESSEE COMPANY IS HAVING ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 4 BUSINESS CONNECTION IN INDIA IN THE FORM OF NORTEL NETWORK INDIA PRIVATE LIMITED (NORTEL INDIA) AND THE L.O. OF M/S NORTEL NETWORK LTD. AO OBSERVED THAT THE CONTRACT IN THIS REGARD IS A TURNKEY CONTRACT, INDIVISIBLE CONTRACT FOR SUPPLY, INSTALLA TION, TESTING, COMMISSIONING ETC. YET THE CONTRACT FOR INSTALLATIO N AND COMMISSIONING WERE ASSIGNED TO NORTEL INDIA. THE EN TIRE RESPONSIBILITY OF THE EXECUTION OF TURN KEY CONTRAC T REMAINED WITH THE GUARANTOR. AO OBSERVED THAT THIS ARRANGEMENT SH OWS THAT ASSESSEE IS GETTING ITS WORK EXECUTED THROUGH NORTE L INDIA. THE RESPONSIBILITIES OF THE ASSESSEE HAVE BEEN ASSIGNED TO THE INDIAN COMPANY WITHOUT ANY CONSIDERATION. THAT NORTEL INDI A HAS UNDERTAKEN THE RESPONSIBILITY FOR NEGOTIATING AND S ECURING THE CONTRACTS. NORTEL INDIA WAS WORKING SO INTIMATELY W ITH THE ASSESSEE, THAT THE CONTRACT AWARDED TO NORTEL INDIA WAS ASSIGNED TO THE ASSESSEE AND THE CONTRACT AWARDED TO THE ASSESS EE WAS ASSIGNED TO NORTEL INDIA. THAT THIS SHOWS THAT BOTH OF THEM ARE WORKING IN UNISON AND ARE ACTING AS ONE ENTITY FOR ALL PRACTICAL PURPOSES. THUS, AO HELD THAT NORTEL INDIA IS A FIXE D PLACE OF BUSINESS AND DEPENDED AGENT PERMANENT ESTABLISHMENT OF THE ASSESSEE AS WELL AS IT IS BUSINESS CONNECTION OF TH E ASSESSEE IN INDIA. AO FURTHER OBSERVED THAT THE ASSESSEE IS ME RELY A SHADOW COMPANY OF NORTEL GROUP AND FOR ALL PRACTICAL PURPO SES, ALL THE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 5 FACILITIES AND SERVICES AVAILABLE TO THE NORTEL GRO UP OF COMPANIES ARE EQUALLY AVAILABLE TO THE ASSESSEE. THE HARDWARE SUPPLIED THROUGH IT IS INSTALLED BY NORTEL INDIA. THE CONTRA CTS WERE PRE NEGOTIATED BY NORTEL INDIA. THE L.O. OF NORTEL CANA DA IS RENDERING ALL KINDS OF SERVICES TO ALL THE GROUP COMPANIES IN CLUDING THE ASSESSEE. IN VIEW OF THESE FACTS, AO OBSERVED THAT ASSESSEE COMPANY AND NORTEL CANADA CANNOT BE HELD AS TWO SEP ARATE ENTITIES. THE ASSESSING OFFICER ALSO DID NOT ACCEP T THE ASSESSEE'S CONTENTION THAT SALES WERE CONCLUDED OVERSEAS AND I NSTALLATION WAS DONE UNDER A SEPARATE CONTRACT. AO OBSERVED THAT AS SESSEE THROUGH NORTEL AND LO APPROACHED THE CUSTOMER, NEGO TIATED THE CONTRACT, BAGGED THE CONTRACT, SUPPLIED EQUIPMENT, INSTALLED THE SAME, UNDERTOOK ACCEPTANCE TEST AFTER WHICH THE SYS TEM WAS ACCEPTED. THE TRANSFER OF TITLE OVERSEAS OR IN MID SEA DOES NOT ALTER THE FACTS THAT THE EQUIPMENT IS ACCEPTED ONLY AFTER ACCEPTANCE TEST IS DONE. THIS TEST IS DONE BY THE NORTEL INDIA ON B EHALF OF THE ASSESSEE. THE EQUIPMENT REMAIN IN THE VIRTUAL POSSE SSION OF NORTEL GROUP TILL SUCH TIME THE EQUIPMENT IS SET UP AND AC CEPTANCE TEST IS DONE. 4. IN THE APPEAL PREFERRED BY THE ASSESSEE, LD. CIT (A) AGREED WITH THE AO THAT FOR THE PURPOSE OF SUPPLY AGREEMEN T UNDER CONSIDERATION, THE ASSESSEE AND NORTEL NETWORK CANA DA SHOULD BE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 6 TREATED AS ONE AND SAME ENTITY. WHILE REJECTING TH E CONTENTION OF THE ASSESSEE THAT IT DID NOT HAVE A PE IN INDIA, LD . CIT(A) HELD THAT THE ACTIVITIES OF THE ASSESSEE IN INDIA CONSTITUTED PE OF THE ASSESSEE UNDER ARTICLE 5(1) FIXED PLACE PE, 5(2)(A) A PLACE OF MANAGEMENT, 5(2)(I) AS A SALE OUTLET, 5(2)(K) INSTALLATION PE, 5(2)(1) IN RESPECT OF SERVICES FOR RELATED ENTERPRISE, AND 5(4) DEPENDANT AGENT PE UNDER THE INDO US DTAA, AND THAT THE ACTIVITIES BEING CAR RIED OUT BY THE PE ARE THE CORE ACTIVITIES OF THE ASSESSEE RESULTIN G IN GENERATION OF INCOME TO THE ASSESSEE, AND THUS THEY CANNOT BE CON SIDERED TO BE A PREPARATORY AND AUXILIARY. ON THIS PREMISE HE CONF IRMED THE ASSESSMENT ORDERS IN APPEALS. HENCE THE ASSESSEE I S IN THESE APPEALS BEFORE US. 5. IN RESPECT OF ALL THE YEARS, ASSESSEE RAISED ALM OST COMMON GROUNDS QUESTIONING THE FINDINGS OF THE AUTHORITIES BELOW IN RESPECT OF THE EXISTENCE OF PE AND THE CONSEQUENT TAXABILIT Y OF THE INCOME OF ASSESSEE AND IN RESPECT OF THE AY 2006-07, THE A SSESSEE ALSO RAISED THE ISSUE RELATING TO THE AO BRINGING THE RE CEIPTS ON ACCOUNT OF SALE OF EMBEDDED SOFTWARE AS ROYALTY. 6. THE COMMON GROUND RAISED BY THE REVENUE IN CROSS OBJECTIONS IS AS FOLLOWS: 'WHETHER THE ASSESSEE IS ENTITLED TO THE BENEFITS O F INDIA-USA DOUBLE TAXATION AVOIDANCE CONVENTION (DTAC) IN VIEW OF THE PROVISIONS OF ARTICLE 24 OF THE DTAC WHICH RESTRICTS THE BENEFITS OF THE TREATY TO COMPANIES IN WHICH MORE THAN 50% OF BENEFICIAL INTEREST /SHARES IS /ARE OWNED, DIRECTLY ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 7 OR INDIRECTLY, BY ONE OR MORE INDIVIDUAL RESIDENTS OF ONE OF THE CONTRACTING STATES, CONSIDERING THE FACT THAT THE ASSESSEE IS A 100% SUBSIDIARY OF M/S NORTEL NETWORKS INC. WHICH IN TURN IS A 100% SUBSID IARY OWNED BY NORTEL NETWORKS LTD., CANADA, AND HENCE EFFECTIVELY MORE T HAN 50% OF BENEFICIAL INTEREST/SHARES IN THE ASSESSEE IS /ARE INDIRECTLY OWNED BY M/S NORTEL NETWORKS, CANADA, A COMPANY INCORPORATED IN CANADA AND NOT A RESIDENT OF USA.' 7. IN RESPECT OF DELAY IN FILING THE CROSS OBJECTIO NS, LD. COUNSEL OF THE ASSESSEE STRONGLY OPPOSED THE CONDONATION OF DELAY IN PREFERRING THE CROSS OBJECTIONS ON THE GROUND THAT THE AO HAS NOT MADE OUT A CASE REGARDING THE ELIGIBILITY OF THE AS SESSEE TO THE BENEFITS OF THE INDO US DTAC INASMUCH AS THE REVENU E HAS BEEN PLEADING THAT THE ASSESSEE CONSTITUTES PERMANENT ES TABLISHMENT (PE) IN INDIA IN TERM OF THE DTAC. LD. AR FURTHER C ONTENDED THAT THE REVENUE HAS RAISED CROSS OBJECTIONS IN EACH OF THE YEARS WITH A DELAY OF 1731 DAYS AS IS EVIDENT FROM THE DEFECT NO TICE ISSUED BY THE REGISTRY OF THE INCOME TAX TRIBUNAL ON 06.02.20 17, AND THROUGH THE CROSS OBJECTIONS, THE REVENUE IS SEEKIN G TO RAISE A LEGAL GROUND IN TERMS OF THE LIMITATION OF BENEFITS CLAUS E UNDER ARTICLE 24 OF THE DTAA TO ALLEGE THAT GIVEN THE RESTRICTION UN DER ARTICLE 24 OF THE DTAA, THE ASSESSEE WAS NOT ELIGIBLE TO THE BENE FITS OF THE INDIA US DTAA. ACCORDING TO HIM, THE REVENUE HAS ALSO F ILED AN APPLICATION DATED 06.02.2017 SEEKING CONDONATION OF THE DELAY IN THE FILING OF THE CROSS OBJECTIONS. HOWEVER, NO SUP PORTING AFFIDAVIT HAS BEEN FILED TO SUPPORT THE CONTENTS OF THE CONDO NATION APPLICATION. RELIANCE IS PLACED ON A DECISION OF TH E DELHI TRIBUNAL ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 8 IN THE CASE OF DCIT V. YKK INDIA P. LTD. [(2016) 16 0 ITD 162 (DELHI)] WHEREIN THE DEPARTMENT FILED CROSS APPEAL AFTER A DELAY OF 7 YEARS, IT WAS HELD AS UNDER : THERE IS AT BEST AN INDICATION THAT THE APPEAL IS FILED NOW BECAUSE OF THE POSSIBILITY OF DAMAGE TO THE REVENUE'S CAUSE IN THE OTHER ASSESSMENT YEARS, BUT THEN SUCH A FACTOR, IN OUR CONSIDERED VI EW, CANNOT BE REASON ENOUGH TO CONDONE THE DELAY. THE CONDONATION OF DEL AY CAN ONLY BE GRANTED WHEN THERE IS A SUFFICIENT CAUSE FOR DELAY IN FILING OF APPEAL, BUT THEN IN THE PRESENT CASE, THERE IS NOTHING TO DEMON STRATE THE CAUSE OF DELAY; IF AT ALL, THE FACTS SET OUT IN THE PETITION SHOW ANYTHING, THESE FACTS SHOW THE CAUSE OF FILING THE APPEAL NOW, RATHER THA N THE CAUSE OF DELAY IN FILING OF THE APPEAL. THERE IS A DIFFERENCE IN CAUS E OF DELAY AND INFERENCES ABOUT CAUSE OF DELAY. UNLESS THE CAUSE OF DELAY IS KNOWN, WHICH IS QUITE DIFFERENT FROM INFERENCE ABOUT THE CAUSE OF DELAY, IT IS NOT EVEN POSSIBLE TO COME TO THE CONCLUSION WHETHER SUCH A CAUSE IS A RE ASONABLE CAUSE OR NOT. IN THE PRESENT CASE, THEREFORE, THERE IS NO OCCASIO N TO EVEN EXAMINE REASONABLENESS OF THE CAUSE OF DELAY, AND AS SUCH I T IS NOT POSSIBLE TO CONDONE THE DELAY. IN OUR CONSIDERED VIEW, THE APPR EHENSIONS, HOWSOEVER JUSTIFIED, ABOUT THE IMPACT OF NON FILING OF APPEAL S FOR ONE YEAR, ON THE FATE OF SIMILAR APPEALS IN THE SUBSEQUENT YEARS, CANNOT BE REASON ENOUGH TO CONDONE THE DELAY IN FILING OF APPEAL AFTER ALMOST EIGHT YEARS. THAT CANNOT, BY ANY STRETCH OF LOGIC, BE THE CAUSE OF DE LAY; THAT CAN AT BEST BE THE IMPACT AND CONSEQUENCES OF DELAY, BUT THEN, AT THE COST OF REPETITION, CONSEQUENCES OF DELAY, HOWSOEVER MATERIAL, CANNOT B E REASON ENOUGH TO CONDONE THE DELAY ITSELF. IN VIEW OF THESE DISCUSSI ONS, IN OUR CONSIDERED VIEW, THE CONDONATION PETITION DOES NOT DESERVE TO BE ACCEPTED. WE REJECT THE SAME. THE APPEAL IS DISMISSED AS TIME BARRED. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE PLEADED THAT THIS IS A PURE LEGAL ISSUE AND THE REVENUE MAY BE ALLOWED TO RAISE THIS GROUND AS NO NEW FACTS ARE TO BE BROUGHT ON RECORD. 8. IN THIS MATTER REVENUE PLEADS THAT IN VIEW OF TH E DECISION OF THE HONBLE HIGH COURT ON 04.05.2016, THE NEED TO S EEK THE ADJUDICATION OF THE ADDITIONAL ISSUE HAD ARISE, AND AS A MATTER OF FACT SUBSTANTIALLY THE SAME GROUND WAS RAISED AS AD DITIONAL GROUND IN A BATCH OF APPEALS IN I.T. APPEAL NOS. 1119 TO 1 121 & 1153 TO ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 9 1155/DEL/2010 FOR ASSESSMENT YEARS 2003-04 TO 2005- 06. BY WAY OF ORDER DATED 13.06.2014, VIDE PARAGRAPH NO 19 , A COORDINATE BENCH OF THIS TRIBUNAL HELD AS FOLLOWS: 19. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND P ERUSED THE RECORDS. WE FIND THAT THE GROUND RAISED BY THE REVE NUE GOES TO THE ROOT OF THE ISSUE INVOLVED. FURTHER IT HAS ALL ALONG BEEN A SSESSEE'S CLAIM THAT IT IS COVERED UNDER THE INDO-US DTAC. HENCE, IN THE INTER EST OF SUBSTANTIAL JUSTICE THIS ADDITIONAL GROUND DESERVES TO BE ADMIT TED. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE GROUND RAISED BY THE REVENUE GOES TO THE ROOT OF THE ISSUE INVOLVED AND IT HAS BEEN THE CLAIM OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT IT IS CO VERED UNDER THE INDO-US DTAC. IN THESE CIRCUMSTANCES, WE ARE INCLIN ED TO CONDONE THE DELAY TO PERMIT THE REVENUE TO FILE THE CROSS O BJECTIONS. 10. NOW COMING THE CONTENTIONS OF THE PARTIES ON EI THER SIDE, THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS, LD. AR SUBMITTED THAT THE INCIDENTAL ISSUE HAS BEEN WHETHER THE ASSE SSEE HAD A PERMANENT ESTABLISHMENT IN INDIA UNDER THE PROVISIO NS OF THE INDIA USA DOUBLE TAXATION AVOIDANCE AGREEMENT, BU T AFTER THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N ASSESSEES OWN CASE IN NORTEL NETWORKS INDIA INTERNATIONAL INC. VS . DIT (2016) 386 ITR 353, THE ISSUE SINGULARLY REVOLVES AROUND THE C ONTROVERSY WHETHER ANY PORTION OF THE OFFSHORE SUPPLIES MADE B Y THE ASSESSEE WERE LIABLE TO BE TAXED IN INDIA. HOWEVER, FOR ASSE SSMENT YEAR ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 10 2006-07 AN ADDITIONAL ISSUE WHICH ARISES IS IN RESP ECT OF THE TAXATION OF INCOME FROM SUPPLY OF SOFTWARE TO RELIA NCE, AND IN ALL THESE APPEALS, THE ASSESSEE HAS ALSO AGITATED THE I SSUE OF LEVY OF INTEREST U/S 234B OF THE ACT. IT IS CONTENDED ON BE HALF OF THE REVENUE THAT THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT IN NORTEL NETWORKS INDIA INTERNATIONAL INC. VS. DIT (2016) 386 ITR 353 IS CHALLENGED BY THE DEPARTMENT BEFORE THE HON BLE SUPREME COURT AND SINCE THE MATTER IS PENDING BEFORE THE HO NBLE APEX COURT THE ISSUE CANNOT BE SAID TO HAVE BEEN DECIDED FINALLY. ON THIS PREMISE, HE URGED TO UPHOLD THE DECISIONS OF T HE AUTHORITIES BELOW. 11. AT THE OUTSET, A PERUSAL OF THE JUDGEMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN NORTEL NETWORKS INDIA INTERNATIONAL INC. VS. DCIT (2016) 3 86 ITR 353 REVEALS THAT INASMUCH AS THE PRESENT BATCH OF APPEA LS RELATE TO ASSESSMENT YEARS 2006-07, 2007-08, 2009-10 & 2010-1 1, SIMILAR ISSUES HAD ARISEN IN THE ASSESSEES OWN CASE FOR AS SESSMENT YEARS 2003-04, 2004-05, 2005-06 & 2008-09; WHEN THE MATTE R HAD TRAVELLED UPTO THE JURISDICTIONAL HIGH COURT, ALL T HE ISSUES INVOLVED IN THIS MATTER INCLUDING THE QUESTION RELATING TO W HETHER THERE EXISTED A PERMANENT ESTABLISHMENT OF THE ASSESSEE I N INDIA, WERE CONSIDERED BY THE JURISDICTIONAL HIGH COURT FOR THE ABOVE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 11 MENTIONED ASSESSMENT YEARS, AND HAVING CONSIDERED T HE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LEGAL POSITION, T HE JURISDICTIONAL HIGH COURT HELD THAT THERE DID NOT EXIST ANY PERMAN ENT ESTABLISHMENT OF THE ASSESSEE IN INDIA AND CONSEQUE NTLY NO PORTION OF THE INCOME ARISING FROM OFFSHORE SUPPLIES WAS LI ABLE TO BE TAXED IN INDIA U/S 9(1) READ WITH EXPLANATION-I OF THE IN COME TAX ACT. 12. THE HONBLE HIGH COURT VIDE PARAGRAPHS 36 OF TH E JUDGEMENT OBSERVED THAT THE CONTROVERSY WHETHER THE ASSESSEE HAS A PE IN INDIA IS INTERLINKED TO THE FINDING THAT NORTEL IND IA HAD DISCHARGED SOME OF THE OBLIGATIONS OF THE ASSESSEE UNDER THE E QUIPMENT CONTRACT, AND HAVING CONSIDERED THE DISPUTE WHETHER THE ASSESSEE HAS A PE IN INDIA AND THE ISSUE OF ATTRIBUTION OF I NCOME TO THE ASSESSEE'S ALLEGED PE IN INDIA, VIDE PARAGRAPH NO 3 9 OF THE JUDGEMENT FOUND THAT THE CONTENTION ADVANCED ON BEH ALF OF THE ASSESSEE THAT NORTEL INDIA HAD ACTED FOR ITSELF AND NOT ON BEHALF OF ANY OTHER GROUP ENTITY CANNOT BE ACCEPTED AND THE F INDINGS OF THE INCOME TAX AUTHORITIES THAT NORTEL INDIA HAD NEGOTI ATED THE CONTRACT ON BEHALF OF THE NORTEL GROUP AS A WHOLE C ANNOT BE FAULTED. 13. HAVING FOUND SO, AFTER TAKING INTO CONSIDERATIO N ALL THESE AVERMENTS AND ALLEGATIONS OF THE LOWER AUTHORITIES AS IS ALSO THE CASE OF THE AO IN THE ASSESSMENT YEARS UNDER CONSID ERATION NOW, THE HIGH COURT THOUGHT IT FIT TO ASSUME THAT THE EQ UIPMENT ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 12 CONTRACT WAS PERFORMED BY NORTEL CANADA AND AFTER F OLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF SIR DI NSHAW MANECKJEE PETITI AIR 1927, BOMBAY, 371 LIFTED THE C ORPORATE VEIL TO EXAMINE THE ISSUE AND HELD THAT THE ONLY ISSUE TO B E EXAMINES IS WHETHER ANY INCOME FROM SUPPLY OF EQUIPMENT COULD B E TAXED UNDER THE ACT. 14. THE HONBLE HIGH COURT THEN EXAMINED THE TAXABI LITY OF THE TRANSACTION UNDER THE ACT, IN THE LIGHT OF THE PROV ISIONS OF SECTION 9(1) OF THE ACT AND THE PHRASE BUSINESS CONNECTION AS HAS BEEN DISCUSSED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. R.D. AGGARWAL &CO. (1965) 56 ITR 20 (SC), INASMUCH AS TH E PROVISIONS OF SECTION 9(1) OF THE ACT CLEARLY PROVIDE THAT ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM AN Y PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF IN COME IN INDIA, OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT, VIDE PARA 4 3-44 ARE THAT, - 43. IT IS APPARENT FROM THE PLAIN READING OF SECTION 9 (1) OF THE ACT THAT ALL INCOME WHICH ACCRUES OR ARISES THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA WOULD BE DEEMED TO ACCRUE OR ARISE IN INDI A. IN CIT V. R.D. AGGARWAL & CO. [1965] 56 ITR 20 (SC) , THE SUPREME COURT OBSERVED THAT BUSINESS CONNECTION WOULD MEAN 'A RELATION BETWEEN A BUSINESS CARRIED ON BY A NON-RESIDENT AND SOME ACTIVITY IN THE TAXAB LE TERRITORIES WHICH ARE ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THE EARNINGS , PROFITS OR GAINS OF SUCH BUSINESS'. HOWEVER, BY VIRTUE OF EXPLANATION 1 TO S ECTION 9(1) OF THE ACT, ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 13 ONLY SUCH PART OF THE INCOME WHICH IS REASONABLY AT TRIBUTABLE TO OPERATIONS CARRIED OUT IN INDIA WOULD BE TAXABLE. T HUS, IF IT IS ACCEPTED THAT THE ASSESSEE HAS RECEIVED ONLY THE CONSIDERATI ON FOR THE EQUIPMENT MANUFACTURED AND DELIVERED OVERSEAS, IT WOULD BE DI FFICULT TO UPHOLD THE VIEW THAT ANY PART OF ASSESSEE'S INCOME IS CHARGEAB LE TO TAX UNDER THE ACT AS NO PORTION OF THE SAID INCOME COULD BE ATTRIBUTE D TO OPERATIONS IN INDIA. 44. THERE IS LITTLE MATERIAL ON RECORD TO HOLD THAT NO RTEL INDIA HABITUALLY EXERCISES ANY AUTHORITY ON BEHALF OF THE ASSESSEE O R NORTEL CANADA TO CONCLUDE CONTRACTS ON THEIR BEHALF. THERE IS ALSO N O MATERIAL ON RECORD WHICH WOULD INDICATE THAT NORTEL INDIA MAINTAINED A NY STOCKS OF GOODS OR MERCHANDISE IN INDIA FROM WHICH GOODS WERE REGULARL Y DELIVERED ON BEHALF OF THE ASSESSEE OR NORTEL CANADA. THUS, BY VIRTUE O F EXPLANATION 2 READ WITH EXPLANATION 3 TO SECTION 9(1)(I) OF THE ACT, N O PART OF ASSESSEE'S INCOME COULD BE BROUGHT TO TAX UNDER THE ACT. IT IS ONLY WHEN A NON- RESIDENT ASSESSEE'S INCOME IS TAXABLE UNDER THE ACT THAT THE QUESTION WHETHER ANY BENEFIT UNDER THE DOUBLE TAXATION AVOID ANCE TREATY IS REQUIRED TO BE EXAMINED. 15. THE HONBLE HIGH COURT, THUS, MADE IT SIMPLY CL EAR THAT MERE EXISTENCE OF A BUSINESS CONNECTION IS NOT ENOUGH TO TRIGGER TAXABILITY IN INDIA, AND IN THE ABSENCE OF ANY EVID ENCE BROUGHT ON RECORD TO SHOW THAT SOME PORTION OF ACTIVITIES RELA TING TO OFF SHORE SUPPLIES WERE CARRIED OUT IN INDIA, NO PROFIT ARISI NG FROM OFF SHORE SUPPLIES COULD BE BROUGHT TO TAX IN INDIA. SINCE, TO APPLY THE PRINCIPLE OF APPORTIONMENT AS ENVISAGED IN EXPLANAT ION 1 AND 3 TO SECTION 9(1) OF THE ACT, THERE MUST BE SOME ACTIVIT Y CARRIED OUT IN INDIA RELATING TO THE OFF SHORE SUPPLIES, VIDE PARA GRAPHS 45 TO 50, HAVING CONSIDERED THE SERVICES CONTRACT IN THE LIGH T OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAW AJMA-HARIMA HEAVY INDUSTRIES LTD. V. DIT [2007] 288 ITR 408/158 TAXMAN 259, IN ASSESSEES CASE, THE HONBLE HIGH COURT FOUND TH AT THE TASK OF INSTALLATION, COMMISSIONING AND TESTING WAS CONTRAC TED TO NORTEL ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 14 INDIA AND THUS, THE OPERATIONS PERTAINING TO INSTAL LATION AND COMMISSIONING WERE NOT PERFORMED BY NORTEL INDIA ON BEHALF OF THE ASSESSEE OR NORTEL CANADA BUT ON ITS OWN BEHALF, AS SUCH, NEITHER THE ASSESSEE NOR NORTEL CANADA CAN BE STATED TO HAV E PERFORMED ANY INSTALLATION OR COMMISSIONING ACTIVITY IN INDIA . OBSERVATIONS OF THE HONBLE HIGH COURT ON THIS ASPECT ARE AS FOLLOW S: 45. IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. V. DIT [2007] 288 ITR 408/158 TAXMAN 259 , THE SUPREME COURT CONSIDERED A CASE WHERE PETRONET LNG LIMITED AND FIVE MEMBERS OF A CONSORTI UM HAD ENTERED INTO AN AGREEMENT FOR SETTING UP A LIQUEFIED NATURAL GAS (LNG) RECEIVING, STORAGE AND DE-GASIFICATION FACILITY AT DAHEJ IN TH E STATE OF GUJARAT. THE CONTRACT WAS A TURNKEY PROJECT AND THE ROLE OF EACH MEMBER/CONSORTIUM OF CONTRACTORS WAS SEPARATELY SPECIFIED. THE CONTRACT INVOLVED OFFSHORE SUPPLY, OFFSHORE SERVICES, ONSHORE SUPPLY, ONSHORE SERVICES AND CONSTRUCTION AND ERECTION OF THE FACILITY. THE CONT RACT PRICE INCLUDED CONSIDERATION FOR OFFSHORE SUPPLIES AND OFFSHORE SE RVICES WHICH WAS SPECIFIED SEPARATELY. THE DISPUTES AROSE AS TO LIAB ILITY TO PAY TAX RELATING TO CONSIDERATION FOR OFFSHORE SUPPLIES AND OFFSHORE SERVICES. WHEREAS THE APPELLANT (A MEMBER OF THE CONSORTIUM OF CONTRACTOR S) CONTENDED THAT THE CONTRACT WAS A DIVISIBLE ONE AND IT DID NOT HAVE AN Y LIABILITY TO PAY TAX IN RESPECT OF CONSIDERATION FOR OFFSHORE SERVICES AND OFFSHORE SUPPLIES, THE REVENUE CONTENDED TO THE CONTRARY. ACCORDING TO THE REVENUE, THE CONTRACT IN QUESTION WAS A COMPOSITE ONE AND COULD NOT BE SP LIT UP FOR THE PURPOSES OF CONSIDERING WHETHER THE INCOME ARISING THEREFROM WAS TAXABLE UNDER THE ACT. THE RELEVANT EXTRACTS FROM T HE SAID JUDGMENT ARE REPRODUCED BELOW: '30. THE CONTRACT IS A COMPLEX ARRANGEMENT. PETRONE T AND THE APPELLANT ARE NOT THE ONLY PARTIES THERETO, THERE A RE OTHER MEMBERS OF THE CONSORTIUM WHO ARE REQUIRED TO CARRY OUT DIF FERENT PARTS OF THE CONTRACT. THE CONSORTIUM INCLUDED AN INDIAN COMPANY . THE FACT THAT IT HAS BEEN FASHIONED AS A TURNKEY CONTRACT BY ITSE LF MAY NOT BE OF MUCH SIGNIFICANCE. THE PROJECT IS A TURNKEY PROJECT . THE CONTRACT MAY ALSO BE A TURNKEY CONTRACT, BUT THE SAME BY ITS ELF WOULD NOT MEAN THAT EVEN FOR THE PURPOSE OF TAXABILITY THE EN TIRE CONTRACT MUST BE CONSIDERED TO BE AN INTEGRATED ONE SO AS TO MAKE THE APPELLANT TO PAY TAX IN INDIA. THE TAXABLE EVENTS IN EXECUTIO N OF A CONTRACT MAY ARISE AT SEVERAL STAGES IN SEVERAL YEARS. THE L IABILITY OF THE PARTIES MAY ALSO ARISE AT SEVERAL STAGES. OBLIGATIO NS UNDER THE CONTRACT ARE DISTINCT ONES. SUPPLY OBLIGATION IS DI STINCT AND SEPARATE FROM SERVICE OBLIGATION. PRICE FOR EACH OF THE COMP ONENT OF THE CONTRACT IS SEPARATE. SIMILARLY, OFFSHORE SUPPLY AN D OFFSHORE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 15 SERVICES HAVE SEPARATELY BEEN DEALT WITH. PRICES IN EACH OF THE SEGMENT ARE ALSO DIFFERENT. 31. THE VERY FACT THAT IN THE CONTRACT, THE SUPPLY SEGMENT AND SERVICE SEGMENT HAVE BEEN SPECIFIED IN DIFFERENT PA RTS OF THE CONTRACT IS A POINTER TO SHOW THAT THE LIABILITY OF THE APPELLANT THEREUNDER WOULD ALSO BE DIFFERENT. 32. THE CONTRACT INDISPUTABLY WAS EXECUTED IN INDIA . BY ENTERING INTO A CONTRACT IN INDIA, ALTHOUGH PARTS THEREOF WI LL HAVE TO BE CARRIED OUT OUTSIDE INDIA WOULD NOT MAKE THE ENTIRE INCOME DERIVED BY THE CONTRACTOR TO BE TAXABLE IN INDIA. WE WOULD, HOWEVER, DEAL WITH THIS ASPECT OF THE MATTER A LITTLE LATER. 39. THE TERRITORIAL NEXUS DOCTRINE, THUS, PLAYS AN IMPORTANT PART IN ASSESSMENT OF TAX. TAX IS LEVIED ON ONE TRANSACTION WHERE THE OPERATIONS WHICH MAY GIVE RISE TO INCOME MAY TAKE P LACE PARTLY IN ONE TERRITORY AND PARTLY IN ANOTHER. THE QUESTION W HICH WOULD FALL FOR OUR CONSIDERATION IS AS TO WHETHER THE INCOME T HAT ARISES OUT OF THE SAID TRANSACTION WOULD BE REQUIRED TO BE PROPOR TIONED TO EACH OF THE TERRITORIES OR NOT. 40. INCOME ARISING OUT OF OPERATIONS IN MORE THAN O NE JURISDICTION WOULD HAVE TERRITORIAL NEXUS WITH EACH OF THE JURIS DICTIONS ON ACTUAL BASIS. IF THAT BE SO, IT MAY NOT BE CORRECT TO CONT END THAT THE ENTIRE INCOME 'ACCRUES OR ARISES' IN EACH OF THE JURISDICT ION. 76. IN CONSTRUING A CONTRACT, THE TERMS AND CONDITI ONS THEREOF ARE TO BE READ AS A WHOLE. A CONTRACT MUST BE CONSTRUED KE EPING IN VIEW THE INTENTION OF THE PARTIES. NO DOUBT, THE APPLICA BILITY OF THE TAX LAWS WOULD DEPEND UPON THE NATURE OF THE CONTRACT, BUT THE SAME SHOULD NOT BE CONSTRUED KEEPING IN VIEW THE TAXING PROVISIONS. 98. WE, THEREFORE, HOLD AS UNDER: (A) RE: OFFSHORE SUPPLY (1) THAT ONLY SUCH PART OF THE INCOME, AS IS ATTRIBUTAB LE TO THE OPERATIONS CARRIED OUT IN INDIA CAN BE TAXED IN INDIA. (2) SINCE ALL PARTS OF THE TRANSACTION IN QUESTION I.E. THE TRANSFER OF PROPERTY IN GOODS AS WELL AS THE PAYMEN T, WERE CARRIED ON OUTSIDE THE INDIAN SOIL, THE TRANSA CTION COULD NOT HAVE BEEN TAXED IN INDIA. (3) THE PRINCIPLE OF APPORTIONMENT, WHEREIN THE TER R ITORIAL JURISDICTION OF A PARTICULAR STATE DETERMINES ITS C APACITY TO TAX AN EVENT, HAS TO BE FOLLOWED. (4) THE FACT THAT THE CONTRACT WAS SIGNED IN INDIA IS O F NO MATERIAL CONSEQUENCE, SINCE ALL ACTIVITIES IN CONNE CTION WITH THE OFFSHORE SUPPLY WERE OUTS IDE INDIA, AND THEREFORE CANNOT BE DEEMED TO ACCRUE OR ARISE IN TH E COUNTRY. (5) THERE EXISTS A DISTINCTION BETWEEN A BUSINESS CONNECTION AND A PERMANENT ESTABLISHMENT. AS THE PERMANENT ESTABLISHMENT CANNOT BE SAID TO BE INVOLV ED IN THE TRANSACTION, THE A FOREMENTIONED PROVISION WILL ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 16 HAVE NO APPLICATION. THE PERMANENT ESTABLISHMENT CANNOT BE EQUATED TO A BUSINESS CONNECTION, SINCE T HE FORMER IS FOR THE PURPOSE OF ASSESSMENT OF INCOME O F A NON- RESIDENT UNDER A DOUBLE TAXATION AVOIDANCE AGREEMENT, AND THE LAT TER IS FOR THE APPLICATION OF SECTION 9 OF THE INCOME TAX ACT. (6) CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(1)(I) STAT ES THAT ONLY SUCH PART OF THE INCOME AS IS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA, ARE TAXABLE IN IND IA. (7) THE EXISTENCE OF A PERMANENT ESTABLISHMENT WOULD NOT CONSTITUTE SUFFICIENT 'BUSINESS CONNECTION', AND TH E PERMANENT ESTABLISHMENT WOULD BE THE TAXABLE ENTITY . THE FISCAL JURISDICTION OF A COUNTRY WOULD NOT EXTE ND TO THE TAXING OF ENTIRE INCOME ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. (8) THERE EXISTS A DIFFERENCE BETWEEN THE EXISTENCE OF A BUSINESS CONNECTION AND THE INCOME ACCRUING OR ARIS ING OUT OF SUCH BUSINESS CONNECTION. (9) PARA 6 OF THE PROTOCOL TO THE DTAA IS NOT APPLICABL E, BECAUSE, FOR THE PROFITS TO BE 'ATTRIBUTABLE DIRECTLY OR INDIRECTLY', THE PERMANENT ESTABLISHMENT MUST BE INVOLVED IN THE ACTIVITY GIVING RISE TO THE PROFITS . (B) RE: OFFSHORE SERVICES: (1) SUFFICIENT TERRITORIAL NEXUS BETWEEN THE RENDITION OF SERVICES AND TERRITORIAL LIMITS OF INDIA IS NECESSARY TO MAKE THE INCOME TAXABLE. (2) THE ENTIRE CONTRACT WOULD NOT BE ATTRIBUTABLE TO TH E OPERATIONS IN INDIA VIZ. THE PLACE OF EXECUTION OF THE CONTRAC T, ASSUMING THE OFFSHORE ELEMENTS FORM AN INTEGRAL PART OF THE CONTRACT. (3) SECTION 9(1)(VII) OF THE ACT READ WITH MEMO CANNOT BE GIVEN A WIDE MEANING SO AS TO HOLD THAT THE AMENDMENT WAS O NLY TO INCLUDE THE INCOME OF NON- RESIDENT TAXPAYERS RECEIVED BY THEM OUTSIDE INDIA FROM INDIAN CONCERNS FOR SERVICES REN DERED OUTSIDE INDIA. (4) THE TEST OF RE SIDENCE, AS APPLIED IN INTERNATIONAL LAW ALSO, IS THAT OF THE TAXPAYER AND NOT THAT OF THE RECIPIENT OF SUCH SERVICES. (5) FOR SECTION 9(1)(VII) TO BE APPLICABLE, IT IS NECES SARY THAT THE SERVICES NOT ONLY BE UTILIZED WITHIN INDIA, BUT ALS O BE RENDERED IN INDIA OR HAVE SUCH A 'LIVE LINK' WITH INDIA THAT TH E ENTIRE INCOME FROM FEES AS ENVISAGED IN ARTICLE 12 OF DTAA BECOMES TAXABLE IN INDIA. (6) THE TERMS 'EFFECTIVELY CONNECTED' AND 'ATTRIBUTABLE TO' ARE TO BE CONSTRUED DIFFERENTLY EVEN IF THE OFFSHORE SER VICES AND THE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 17 PERMANENT ESTABLISHMENT WERE CONNECTED. (7) SECTION 9(1)(VII)(C) OF THE ACT IN THIS CASE WOULD HAVE NO APPLICATION AS THERE IS NOTHING TO SHOW THAT THE IN COME DERIVED BY A NON- RESIDENT COMPANY IRRESPECTIVE OF WHERE RENDERED, WAS UTILIZED IN INDIA. (8) ARTICLE 7 OF DTAA IS APPLICABLE IN THIS CASE, AND I T LIMITS THE TAX ON BUSINESS PROFITS TO THAT ARISING FROM THE OP ERATIONS OF THE PERMANENT ESTABLISHMENT. IN THIS CASE, THE ENTI RE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA, AND HAVE NOTHING TO DO WITH THE PERMANENT ESTABLISHMENT, AND CAN THUS NOT BE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT AND THE REFORE NOT TAXABLE IN INDIA. (9) APPLYING THE PRINCIPLE OF APPORTIONMENT TO COMPOSIT E TRANSACTIONS WHICH HAVE SOME OPERATIONS IN ONE TERR ITORY AND SOME IN OTHERS, IS ESSENTIAL TO DETERMINE THE TAXAB ILITY OF VARIOUS OPERATIONS. (10) THE LOCATION OF THE SOURCE OF INCOME WITHIN INDIA W OULD NOT RENDER SUFFICIENT NEXUS TO TAX THE INCOME FROM THAT SOURCE. (11) IF THE TEST APPLIED BY THE AUTHORITY FOR ADV ANCED RULINGS IS TO BE ADOPTED HERE TOO, THEN IT WOULD ELIMINATE THE DI FFERENCE BETWEEN THE CONNECTION BETWEEN INDIAN AND FOREIGN OPERATIONS, AND THE APPORTIONMENT OF INCOME ACCORDI NGLY. (12) THE SERVICES ARE INEXTRICABLY LINKED TO THE SUPPLY OF GOODS, AND IT MUST BE CONSIDERED IN THE SAME MANNER.' 46. IT IS CLEAR FROM THE ABOVE THAT EVEN IN CASES OF A TURNKEY CONTRACT, IT IS NOT NECESSARY THAT FOR THE PURPOSES OF TAXABILITY, THE ENTIRE CONTRACT BE CONSIDERED AS AN INTEGRATED ONE. AND, IT DOES NOT F OLLOW THAT THE AMOUNT PAYABLE FOR SUPPLY OF GOODS OVERSEAS WOULD BE CHARG EABLE TO TAX UNDER THE ACT. 47. AS NOTICED EARLIER, THERE SEEMS TO BE NO DISPUTE T HAT THE TITLE TO THE EQUIPMENT PASSED IN FAVOUR OF RELIANCE OVERSEAS. HO WEVER, THE AO, CIT(A) AND ITAT DID NOT CONSIDER THE SAME TO BE RELEVANT A S ACCORDING TO THEM, THE EQUIPMENT CONTINUED TO BE IN THE POSSESSION OF THE 'NORTEL GROUP' TILL ITS FINAL ACCEPTANCE BY RELIANCE. IN OUR VIEW, EVEN IF IT IS ACCEPTED THAT THE EQUIPMENT SUPPLIED OVERSEAS CONTINUED TO BE IN POSS ESSION OF NORTEL INDIA TILL THE FINAL ACCEPTANCE BY RELIANCE, THE SAME WOU LD NOT IMPLY THAT THE ASSESSEE'S INCOME FROM SUPPLY OF EQUIPMENT COULD BE TAXED UNDER THE ACT. CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(1)(I) OF THE ACT POSTULATES THE PRINCIPLE OF APPORTIONMENT AND ONLY SUCH INCOME THA T CAN BE REASONABLY ATTRIBUTED TO OPERATIONS IN INDIA WOULD BE CHARGEAB LE TO TAX UNDER THE ACT. THE POSITION IN ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD.(SUPRA) WAS ALSO SIMILAR. THERE TOO, THE EQUIPMENTS WERE SUPPLI ED OVERSEAS AND THE CONTRACTOR CONTINUED TO RETAIN CONTROL OF EQUIPMENT AND MATERIAL TILL THE PROVISIONAL ACCEPTANCE OF THE WORK OR THE TERMINATI ON OF THE CONTRACT. THE RELEVANT CLAUSE WHICH WAS CONSIDERED BY THE SUPREME COURT IN THAT CASE IS AS UNDER: ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 18 '22.1 TITLE TO EQUIPMENT AND MATERIALS AND CONTRACT OR'S EQUIPMENT: CONTRACTOR AGREES THAT TITLE TO ALL EQUIPMENT AND M ATERIALS SHALL PASS TO THE SUPPLIER OR SUBCONTRACTOR PURSUANT TO SECTION E OF EXHIBIT H (GENERAL PROJECT REQUIREMENTS AND PROCEDU RES). CONTRACTOR SHALL, HOWEVER, RETAIN CASE, CUSTODY, AN D CONTROL OF SUCH EQUIPMENT AND MATERIALS AND EXERCISE DUE CARE THERE OF UNTIL (A) PROVISIONAL ACCEPTANCE OF THE WORK, OR (B) TERMINAT ION OF THIS CONTRACT, WHICHEVER SHALL FIRST OCCUR. SUCH TRANSFE R OF TITLE SHALL IN NO WAY AFFECT THE OWNER'S RIGHTS UNDER ANY OTHER PROVI SION OF THIS CONTRACT.' 48. IN THE PRESENT CASE, THE CIT(A) HAD CONCLUDED THAT ASSESSEE'S OBLIGATIONS WERE NOT LIMITED TO SUPPLY OF THE EQUIP MENT OVERSEAS BUT ALSO INCLUDED OTHER OBLIGATIONS THAT WERE TO BE PERFORME D IN INDIA. HE FURTHER HELD THAT THE AMOUNTS RECEIVED BY THE ASSESSEE ALSO INCLUDED CONSIDERATION FOR PERFORMANCE OF CERTAIN ACTIVITIES IN INDIA. THIS IS STOUTLY DISPUTED BY THE ASSESSEE. THIS DISPUTE IS PIVOTAL F OR DETERMINING WHETHER ANY PART OF THE ASSESSEE'S INCOME IS CHARGEABLE TO TAX IN INDIA. 49. SECTION 3 OF THE SERVICES CONTRACT WHICH PROVIDE F OR THE SCOPE OF WORK AND SERVICES TO BE PERFORMED UNDER THE SERVICE CONT RACT AND THE RELEVANT EXTRACTS FROM THE SAID SECTION ARE REPRODUCED BELOW : '3.1.1 THE VENDOR HAS TO PROVIDE TO RELIANCE THE SE RVICES SET FORTH IN THE RELEVANT PURCHASE ORDER PURSUANT TO AND IN A CCORDANCE WITH THIS OPTICAL SERVICES CONTRACT. ALL SERVICES SHALL COMPLY WITH THE SPECIFICATIONS AND THE STANDARDS. THE VENDOR SHALL COORDINATE ITS EFFORTS HEREUNDER WITH ALL SUBCONTRACTORS, THIRD PA RTY PROVIDERS AND THE OTHER CONTRACTORS, TO ENSURE COMPLIANCE WITH AN Y AND ALL SUPPLY AND TRANSPORTATION REQUIREMENTS AND ALL GOVE RNMENTAL ENTITIES. ALL SERVICES, REQUIRING CERTIFICATION SHA LL BE CERTIFIED BY INDEPENDENT AND APPROPRIATE PROFESSIONALS LICENSED OR PROPERLY QUALIFIED TO PERFORM SUCH CERTIFICATION IN AN APPRO PRIATE JURISDICTIONS, REASONABLY ACCEPTABLE AND AT NO COST TO RELIANCE, IF SUCH CERTIFICATION IS REQUIRED BY APPLICABLE LAW OR THE SPECIFICATIONS. VENDOR SHALL PROVIDE TO RELIANCE, N ECESSARY INSTALLATION CERTIFICATES, AS PER EPCG REGULATIONS FOR WHICH THE PARTIES WILL MUTUALLY AGREE ON A FORMAT AND PROCEDU RE AND FOR WHICH RELIANCE SHALL REIMBURSE VENDOR FOR REASONABL E ACTUAL FEES PAID TO ANY CHARTERED ENGINEERS PROVIDING SUCH CERT IFICATION. ** ** ** 3.2.1 VENDOR SHALL PROVIDE ALL SERVICES PURCHASED U NDER A PURCHASE ORDER AND IN ACCORDANCE WITH THE RELEVANT SPECIFICA TIONS ON AN END- TO-END BASIS TO ENSURE SUCCESSFUL COMPLETION OF THE WORK (PROVIDED, HOWEVER, THAT INSTALLATION AND COMMISSIONING SERVIC ES SHALL BE LIMITED TO THE SERVICES REQUESTED ORDERED IN THE AP PLICABLE PURCHASE ORDER), WHICH SERVICES INCLUDE BUT ARE NOT LIMITED TO: (A) PRODUCT INSTALLATION AND COMMISSIONING (INCLUDING ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 19 COMMISSIONING TESTING) SERVICES INCLUDING, BUT NOT LIMITED TO, READY FOR INSTALLATION INSPECTION AND VALIDATIO N AND AS- BUILT DOCUMENTATION (REDLINE VERSIONS); AND ** ** ** 3.2.2 AT RELIANCE'S REQUEST VENDOR SHALL MOBILIZE A ND COMMIT SUFFICIENT RESOURCES NECESSARY TO SUCCESSFULLY IMPL EMENT THE INITIAL OPTICAL RELIANCE NETWORK WHICH WILL INCLUDE UP TO T WO HUNDRED (200) EXPATRIATES, WITH THE APPROVAL OF RELIANCE, A S REQUIRED, INCLUDING SUBJECT MATTER EXPERTS (SUBJECT TO THE EX PERIENCE REQUIREMENTS SET FORTH IN SECTION 3.10 BELOW).' 50. A BARE PERUSAL OF THE SERVICES CONTRACT CLEARLY IN DICATES THAT THE TASK OF INSTALLATION, COMMISSIONING AND TESTING WAS CONT RACTED TO NORTEL INDIA AND THUS, THE OPERATIONS PERTAINING TO INSTALLATION AND COMMISSIONING WERE NOT PERFORMED BY NORTEL INDIA ON BEHALF OF THE ASSESSEE OR NORTEL CANADA BUT ON ITS OWN BEHALF. THUS, NEITHER THE ASS ESSEE NOR NORTEL CANADA CAN BE STATED TO HAVE PERFORMED ANY INSTALLA TION OR COMMISSIONING ACTIVITY IN INDIA. 16. ON THE ASPECT OF TAXABILITY OF THE INCOME FROM INSTALLATION, COMMISSIONING AND TESTING ACTIVITIES AS WELL AS ANY FUNCTION PERFORMED BY EXPATRIATE EMPLOYEES OF THE GROUP COMP ANIES SECONDED TO NORTEL INDIA, HONBLE HIGH COURT HELD T HAT THE SAME CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE, BUT WOULD BE SUBJECT TO TAX IN THE HANDS OF NORTEL INDIA, AS UND ER: 63. UNDISPUTEDLY, EVEN IF IT IS ACCEPTED THAT SOME POR TION OF THE OBLIGATIONS UNDERTAKEN BY THE ASSESSEE WERE PERFORM ED IN INDIA, THE ASSESSEE'S INCOME ARISING FROM THE PERFORMANCE OF THE EQUIPMENT CONTRACT COULD BE BROUGHT TO TAX ONLY TO THE EXTENT AS PERMISSIBLE UNDER THE RELEVANT DTAA - DTAA BETWEEN INDIA AND USA OR DTAA BETWEEN INDIA AND CANADA. . 69. THE AO, CIT(A) AND ITAT HAVE HELD THAT THE OFFICE OF NORTEL INDIA AND NORTEL LO CONSTITUTED A FIXED PLACE OF BU SINESS OF THE ASSESSEE. AS POINTED OUT EARLIER, WE FIND NO MATERI AL ON RECORD THAT WOULD EVEN REMOTELY SUGGEST THAT NORTEL LO HAD ACTE D ON BEHALF OF THE ASSESSEE OR NORTEL CANADA IN NEGOTIATING AND CO NCLUDING AGREEMENTS ON THEIR BEHALF. THUS, IT IS NOT POSSIBL E TO ACCEPT THAT THE OFFICES OF NORTEL LO COULD BE CONSIDERED AS A F IXED PLACE OF ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 20 BUSINESS OF THE ASSESSEE. INSOFAR AS NORTEL INDIA I S CONCERNED, THERE IS ALSO NO EVIDENCE THAT THE OFFICES OF NORTE L INDIA WERE AT THE DISPOSAL OF THE ASSESSEE OR NORTEL CANADA. EVEN IF IT IS ACCEPTED THAT NORTEL INDIA HAD ACTED ON BEHALF OF THE ASSESS EE OR NORTEL CANADA, IT DOES NOT NECESSARILY FOLLOW THAT THE OFF ICES OF NORTEL INDIA CONSTITUTED A FIXED PLACE BUSINESS PE OF THE ASSESSEE OR NORTEL CANADA. NORTEL INDIA IS AN INDEPENDENT COMPA NY AND A SEPARATE TAXABLE ENTITY UNDER THE ACT. THERE IS NO MATERIAL ON RECORD WHICH WOULD INDICATE THAT ITS OFFICE WAS USE D AS AN OFFICE BY THE ASSESSEE OR NORTEL CANADA. EVEN IF IT IS ACCEPT ED THAT CERTAIN ACTIVITIES WERE CARRIED ON BY NORTEL INDIA ON BEHAL F OF THE ASSESSEE OR NORTEL CANADA, UNLESS THE CONDITIONS OF PARAGRAP H 5 OF ARTICLE 7 OF THE INDO-US DTAA IS SATISFIED, IT CANNOT BE HELD THAT NORTEL INDIA CONSTITUTED A FIXED PLACE OF BUSINESS OF THE ASSESS EE OR NORTEL CANADA. 70. THE AO HAS FURTHER ALLEGED THAT THE OFFICES OF NOR TEL LO AND NORTEL INDIA WERE USED AS A SALES OUTLET. IN OUR VI EW, THIS FINDING IS ALSO UNMERITED AS THERE IS NO MATERIAL WHICH WOULD SUPPORT THIS VIEW. THE FACTS ON RECORD ONLY INDICATE THAT NORTEL INDIA NEGOTIATED CONTRACTS WITH RELIANCE. EVEN ASSUMING THAT THE CON TRACTS FORM A PART OF THE SINGLE TURNKEY CONTRACT, WHICH INCLUDE SUPPLY OF EQUIPMENT - AS HELD BY THE AUTHORITIES BELOW - THE SAME CANNOT LEAD TO THE CONCLUSION THAT NORTEL INDIA WAS ACTING AS A SALES OUTLET. 71. THE AO'S CONCLUSION THAT THERE IS AN INSTALLATION P E IN INDIA, IS ALSO WITHOUT ANY MERIT. A BARE PERUSAL OF THE SERVI CES CONTRACT CLEARLY INDICATES THAT THE TASKS OF INSTALLATION, C OMMISSIONING AND TESTING WAS CONTRACTED TO NORTEL INDIA AND NORTEL I NDIA PERFORMED SUCH TASKS ON ITS OWN BEHALF AND NOT ON BEHALF OF T HE ASSESSEE OR NORTEL CANADA. UNDISPUTEDLY, NORTEL INDIA WAS ALSO RECEIVED THE AGREED CONSIDERATION FOR PERFORMANCE OF THE SERVICE S CONTRACT DIRECTLY BY RELIANCE. 72. THE FINDING THAT NORTEL INDIA IS A SERVICES PE OF THE ASSESSEE IS ALSO ERRONEOUS. THERE IS NO MATERIAL TO HOLD THAT N ORTEL INDIA PERFORMED SERVICES ON BEHALF OF THE ASSESSEE. 73. THE AO HAS ALSO HELD THAT NORTEL INDIA CONSTITUTED DEPENDENT AGENT PE OF THE ASSESSEE IN INDIA. THE AFORESAID CO NCLUSION WAS PREMISED ON THE FINDING THAT NORTEL INDIA HABITUALL Y CONCLUDES CONTRACTS ON BEHALF OF THE ASSESSEE AND OTHER NORTE L GROUP COMPANIES. IN THE PRESENT CASE, THERE IS NO MATERIA L ON RECORD WHICH WOULD INDICATE THAT NORTEL INDIA HABITUALLY E XERCISES AUTHORITY TO CONCLUDE CONTRACTS FOR THE ASSESSEE OR NORTEL CANADA. IN ORDER TO CONCLUDE THAT NORTEL INDIA CONSTITUTES A DEPENDENT AGENT PE, IT WOULD BE NECESSARY FOR THE AO TO NOTICE AT L EAST A FEW INSTANCES WHERE CONTRACTS HAD BEEN CONCLUDED BY NOR TEL INDIA IN INDIA ON BEHALF OF OTHER GROUP ENTITIES. IN ABSENCE OF ANY SUCH EVIDENCE, THIS VIEW COULD NOT BE SUSTAINED. ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 21 74. THE CIT(A) AS WELL AS THE ITAT HAS PROCEEDED ON TH E BASIS THAT THE ASSESSEE HAD EMPLOYED THE SERVICES OF NORTEL IN DIA FOR FULFILLING ITS OBLIGATIONS OF INSTALLATION, COMMISSIONING, AFT ER SALES SERVICE AND WARRANTY SERVICES. THE ITAT ALSO CONCURRED WITH THE VIEW THAT SINCE EMPLOYEES OF GROUP COMPANIES HAD VISITED INDIA IN C ONNECTION WITH THE PROJECT, THE BUSINESS OF THE ASSESSEE WAS CARRI ED OUT BY THOSE EMPLOYEES FROM THE BUSINESS PREMISES OF NORTEL INDI A AND NORTEL LO. IN THIS REGARD, IT IS RELEVANT TO OBSERVE THAT A SUBSIDIARY COMPANY IS AN INDEPENDENT TAX ENTITY AND ITS INCOME IS CHARGEABLE TO TAX IN THE STATE WHERE IT IS RESIDENT. IN THE PR ESENT CASE, THE TAX PAYABLE ON ACTIVITIES CARRIED OUT BY NORTEL INDIA W OULD HAVE TO BE CAPTURED IN THE HANDS OF NORTEL INDIA. CHAPTER X OF THE ACT PROVIDES AN EXHAUSTIVE MECHANISM FOR DETERMINING THE ARM'S L ENGTH PRICE IN CASE OF RELATED PARTY TRANSACTIONS FOR ENSURING THA T REAL INCOME OF AN INDIAN ASSESSEE IS CHARGED TO TAX UNDER THE ACT. THUS, THE INCOME FROM INSTALLATION, COMMISSIONING AND TESTING ACTIVITIES AS WELL AS ANY FUNCTION PERFORMED BY EXPATRIATE EMPLOY EES OF THE GROUP COMPANIES SECONDED TO NORTEL INDIA WOULD BE S UBJECT TO TAX IN THE HANDS OF NORTEL INDIA AND THE SAME CANNOT BE CO NSIDERED AS INCOME OF THE ASSESSEE. 17. THE HONBLE HIGH COURT, THEREFORE, CATEGORICALL Y FOUND THAT I. THAT THE ASSESSEE DOES NOT HAVE A PE IN INDIA, II. THE TASK OF INSTALLATION, COMMISSIONING AND TESTING WAS CONTRACTED TO NORTEL INDIA AND THUS, THE OPERATIONS PERTAINING TO INSTALLATION AND COMMISSIONING WERE N OT PERFORMED BY NORTEL INDIA ON BEHALF OF THE ASSESSEE OR NORTEL CANADA BUT ON ITS OWN BEHALF, AS SUCH, NEITH ER THE ASSESSEE NOR NORTEL CANADA CAN BE STATED TO HAV E PERFORMED ANY INSTALLATION OR COMMISSIONING ACTIVIT Y IN INDIA, III. EVEN IF IT IS ACCEPTED THAT THE EQUIPMENT SUPPLIED OVERSEAS CONTINUED TO BE IN POSSESSION OF NORTEL IN DIA TILL THE FINAL ACCEPTANCE BY RELIANCE, THE SAME WOULD NO T IMPLY THAT THE ASSESSEE S INCOME FROM SUPPLY OF EQUIPMENT COULD BE TAXED UNDER THE ACT, AND IV. THE INCOME FROM INSTALLATION, COMMISSIONING AND TES TING ACTIVITIES AS WELL AS ANY FUNCTION PERFORMED BY EXP ATRIATE EMPLOYEES OF THE GROUP COMPANIES SECONDED TO NORTEL INDIA WOULD BE SUBJECT TO TAX IN THE HANDS OF NORTE L INDIA AND THE SAME CANNOT BE CONSIDERED AS INCOME O F THE ASSESSEE. ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 22 18. FACTS AND CIRCUMSTANCES FOR ALL THESE YEARS ARE THE SAME. ASSESSING OFFICER PLACED RELIANCE ON THE FINDINGS O F THE EARLIER ASSESSMENT YEARS IN THE ASSESSMENT ORDERS FOR THE A SSESSMENT YEARS UNDER CONSIDERATION IN THESE APPEALS. THE ISS UE IS NO LONGER RES INTEGRA, AND STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, AND SINCE THE HIGH COURT HAD HELD THAT NO TAXABILIT Y AROSE UNDER THE PROVISIONS OF SECTION 9 ITSELF, THE ISSUE OF EX ISTENCE OF PERMANENT ESTABLISHMENT BECOMES ACADEMIC. WE, THERE FORE, WHILE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE REPORTED IN (2016 ) 386 ITR 353, ANSWER THE GROUNDS IN THE APPEALS PREFERRED BY THE ASSESSEE ACCORDINGLY IN FAVOUR OF THE ASSESSEE. 19. NOW COMING TO THE ISSUE RELATING TO TAXATION OF SOFTWARE IS CONCERNED, FOR ASSESSMENT YEAR 2006-07, THE ASSESSI NG OFFICER HAD SEPARATELY BROUGHT THE RECEIPTS ON ACCOUNT OF SALE OF EMBEDDED SOFTWARE AS ROYALTY. LD. AR CONTENDED THAT THIS ISS UE ALSO STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE ONCE IT WAS HELD THAT THE ASSESSEE WAS NOT TAXABLE UNDER THE PROVISIONS OF SE CTION 9 ITSELF. EVEN OTHERWISE, ACCORDING TO HIM, THE ISSUE OF EMBE DDED SOFTWARE IN HARDWARE WHETHER COULD BE TAXED SEPARATELY AS RO YALTY ALREADY STANDS DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 23 VS. ZTE CORPORATION (2017) 392 ITR PAGE 80 (DEL.). LD. DR VEHEMENTLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 20. IN CIT VS. ZTE CORPORATION (2017) 392 ITR PAGE 80 (DEL.) IT IS HELD AS FOLLOWS: 21. THE REFERENCE TO CLAUSES (A) AND (B) MEANS THAT AL L THE RIGHTS WHICH ARE IN LITERARY WORKS I.E. '(I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY ME DIUM BY ELECTRONIC MEANS;(II) TO ISSUE COPIES OF THE WORK TO THE PUBLI C NOT BEING COPIES ALREADY IN CIRCULATION;(III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC;(IV) TO MAKE ANY CINEMATOGRAPH FIL M OR SOUND RECORDING IN RESPECT OF THE WORK;(V) TO MAKE ANY TRANSLATION OF THE WORK;(VI) TO MAKE ANY ADAPTATION OF THE WORK;(VII) TO DO, IN REL ATION TO A TRANSLATION OR AN ADAPTATION OF THE WORK, ANY OF THE ACTS SPECI FIED IN RELATION TO THE WORK IN SUB-CLAUSES (I) TO (VI)' INHERE IN THE OWNE R OF COPYRIGHT OF A COMPUTER PROGRAMME. THEREFORE, THE COPYRIGHT OWNER' S RIGHTS ARE SPELT OUT COMPREHENSIVELY BY THIS PROVISION. IN THE CONTE XT OF THE FACTS OF THIS CASE, THE ASSESSEE IS THE COPYRIGHT PROPRIETOR; IT MADE AVAILABLE, THROUGH ONE TIME LICENSE FEE, THE SOFTWARE TO ITS C USTOMERS; THIS SOFTWARE WITHOUT THE HARDWARE WHICH WAS SOLD, IS US ELESS. CONVERSELY THE HARDWARE SOLD BY THE ASSESSEE TO ITS CUSTOMERS IS ALSO VALUELESS AND CANNOT BE USED WITHOUT SUCH SOFTWARE. THIS ANAL YSIS IS TO SHOW THAT WHAT WAS CONVEYED TO ITS CUSTOMERS BY THE ASSE SSEE BEARS A CLOSE RESEMBLANCE TO GOODS- SIGNIFICANTLY ENOUGH, S ECTION 14(1) TALKS OF SALE OR RENTAL OF A 'COPY'. THE QUESTION OF CONVEYI NG OR PARTING WITH COPYRIGHT IN THE SOFTWARE ITSELF WOULD MEAN THAT TH E COPYRIGHT PROPRIETOR HAS TO ASSIGN IT, DIVESTING ITSELF OF TH E TITLE IMPLYING THAT IT HAS DIVESTED ITSELF OF ALL THE RIGHTS UNDER SECTION 14. THIS WOULD MEAN AN OUTRIGHT SALE OF THE COPYRIGHT OR ASSIGNMENT, UN DER SECTION 18 OF THE ACT. SECTION 16 OF THE COPYRIGHT ACT ENACTS THAT TH ERE CANNOT BE ANY OTHER KIND OF RIGHT TERMED AS 'COPYRIGHT'. 22. IN THE PRESENT CASE, THE FACTS ARE CLOSELY SIMILAR TO ERICSON. THE SUPPLIES MADE (OF THE SOFTWARE) ENABLED THE USE OF THE HARDWARE SOLD. IT WAS NOT DISPUTED THAT WITHOUT THE SOFTWARE, HARD WARE USE WAS NOT POSSIBLE. THE MERE FACT THAT SEPARATE INVOICING WAS DONE FOR PURCHASE AND OTHER TRANSACTIONS DID NOT IMPLY THAT IT WAS RO YALTY PAYMENT. IN SUCH CASES, THE NOMENCLATURE (OF LICENSE OR SOME OT HER FEE) IS INDETERMINATE OF THE TRUE NATURE. NOR IS THE CIRCUM STANCE THAT UPDATES OF THE SOFTWARE ARE ROUTINELY GIVEN TO THE ASSESSEE 'S CUSTOMERS. THESE FACTS DO NOT DETRACT FROM THE NATURE OF THE TRANSAC TION, WHICH WAS SUPPLY OF SOFTWARE, IN THE NATURE OF ARTICLES OR GO ODS. THIS COURT IS ALSO NOT PERSUADED WITH THE SUBMISSION THAT THE PAYMENTS , IF NOT ROYALTY, AMOUNTED TO PAYMENTS FOR THE USE OF MACHINERY OR EQ UIPMENT. ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 24 21. HAVING CONSIDERED THE SUBMISSIONS OF THE LD. AR IN THE LIGHT OF THE ORDERS OF THE AUTHORITIES BELOW AND THE ABOV E DECISION, WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSION MAD E ON BEHALF OF THE ASSESSEE THAT THE EMBEDDED SOFTWARE IS NOT ROYA LTY AND THE RECEIPTS ON ACCOUNT OF SALE OF EMBEDDED SOFTWARE CA NNOT BE SEPARATELY BROUGHT TO TAX. 22. THE NEXT ISSUE RELATES TO THE LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. LD. AR SUBMITTED THAT THIS ISSUE ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. ZTE CORPORATION ( 392 ITR 80) AND DIT VS. GE PACKAGED POWER INC. (373 ITR 65) (DE L.). BE THAT AS IT MAY, IN VIEW OF THE FINDING OF THE HONBLE HI GH COURT IN ASSESSEES OWN CASE REPORTED IN (2016) 386 ITR 353 THAT NO PORTION OF THE PROFITS FROM OFF SHORE SUPPLIES WAS TAXABLE IN INDIA, LEVY OF INTEREST BECOMES ACADEMIC GIVEN THE ABSENCE OF ANY TAXABLE INCOME IN INDIA. 23. AS REGARDS THE CROSS OBJECTIONS RAISED BY THE R EVENUE, IT IS CONTENDED BY THE LD. AR THAT FIRSTLY, THE CROSS OBJ ECTIONS WERE BARRED BY LIMITATION, SECONDLY GIVEN THE FINDING OF THE HIGH COURT OF NON-TAXABILITY UNDER THE PROVISIONS OF DOMESTIC LAW ITSELF, THE SAME WERE RENDERED ACADEMIC, THIRDLY THERE WAS NO Q UESTION OF ANY BENEFIT HAVING TAKEN BY THE ASSESSEE UNDER THE PROV ISIONS OF THE ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 25 INDIA USA DTAA SINCE THE TREATY HAD BEEN RESORTED TO BY THE ASSESSING OFFICER FOR THE CREATION OF A PERMANENT E STABLISHMENT OF THE ASSESSEE IN INDIA AND THAT WAS NOT A BENEFIT PR OVIDED BY THE TREATY. 24. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE FACT THAT FOR THE EARLIER ASSESSME NT YEARS A SPECIFIC FINDING WAS GIVEN BY THE HIGH COURT AS TO THE NON-T AXABILITY OF THE ASSESSEE UNDER THE PROVISIONS OF THE INCOME TAX ACT AND THE REVENUE HAD FILED A SPECIAL LEAVE PETITION BEFORE T HE HONBLE SUPREME COURT WHICH STOOD ADMITTED INVOLVING SIMILA R QUESTIONS, THE QUESTIONS RELATING TO THE LIMITING OF BENEFITS IS ONLY ACADEMIC AND DOES NOT REQUIRED TO BE ADJUDICATED SPECIFICALL Y. WE, THEREFORE, FIND THAT THE CROSS OBJECTIONS PREFERRED BY THE REV ENUE ARE LIABLE TO BE DISMISSED. 25. IN THE RESULT, ITA NOS.3313 TO 3315/DEL/2012 & 1087/DEL/2014 OF THE ASSESSEE ARE ALLOWED AND C.OS NOS.-21 TO 24/DEL/2017 OF THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2017. SD/- SD/- (N.K.SAINI) (K.N.CHARRY) ACCOUNTANT MEMBER JUDICIA L MEMBER *AMIT KUMAR* DATE:- 26.09.2017 ITA NOS. 3313 TO 3315/DEL/2012 & 1087/DEL/2014 C.O.NOS.-21 TO 24/DEL/2017 PAGE | 26 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI