Aspect Software Inc., USA V. DCIT (International Taxation), New Delhi

ITA 1452/DEL/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 7811 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 09-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G K DHALL INT TAX
• Keywords: Transfer pricing; International transaction; Permanent establishment; Question of law; Initiation of penalty proceedings
• Section: 143(3); 92E; 5(2); 234B

Judgement Text

ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN T AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1452/DEL/2017 AY: 20 12-13 ITA NO. 1453/DEL/2017 AY: 20 13-14 ASPECT SOFTWARE INC., VS DCIT (IN TERNATIONAL TAXATION), 300, APOLLO DRIVE, CIRCLE 1(1)(1), CHELMSFORD, NEW DELHI. MASSAUCHUSETTS, USA (PAN: AAGCA7513D) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI ANKUR GOYAL, ADV. DEPARTMENT BY : SHRI G.K. DHALL, INT. TAX DATE OF HEARING: 3.7.2018 DATE OF PRONOUNCEMENT: 27.09.2018 ORDER PER BENCH ITA NO. 1452/DEL/ 2017 HAS BEEN PREFERRED BY THE A SSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 12.01.2017 FOR ASSESSMENT YEAR 2012-13 WHEREAS ITA 1453/DEL/2017 I S AGAINST THE FINAL ASSESSMENT ORDER DATED 12.01.2017 FOR ASS ESSMENT YEAR 2013-14. 2.0 BRIEF FACTS OF THE CASE ARE FOR THE ASSESSMENT YEAR 2012-13 THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSM ENT YEAR 2012- ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 2 13 ON 29.09.2012 DECLARING INCOME OF RS. 4,15,35,23 0/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2 ) OF THE I.T. ACT, 1961, WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO E XPLAIN HOW THE FACTUAL MATRIX AND BUSINESS MODEL OF THIS YEAR IS DIFFERENT FROM ASSESSMENT YEAR 2007-08 AND WHY THE ASSESSMENT SHOULD NOT BE COMPLETED ON THE LINES OF EARLIER ASSESSMENT YEARS. VIDE ITS REPLY DATED 02.02.2016, THE ASSESSEE SUBMITTED THAT THERE WAS NO CHANGE IN THE BUSINESS MODEL OF ASSESSEE VIS --VIS THE EARLIER YEARS. THE ASSESSEE CONTENDED THAT IT DOES NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA. IT FURTHER C ONTENDED, WITHOUT PREJUDICE TO THE CONTENTION REGARDING THE A BSENCE OF PE IN INDIA, THAT THERE CANNOT BE ANY BASIS FOR ATTRIB UTING 15% OF THE REVENUES EARNED FROM THE SALE OF HARDWARE TO THE EN D USERS IN INDIA, MIDDLE EAST AND SRI LANKA. THE ASSESSING OFF ICER (A.O.)/LD. DISPUTES RESOLUTION PANEL (DRP) CONSIDER ED THE CONTENTIONS RAISED BY THE ASSESSEE AND FOUND THAT T HESE WERE SIMILAR CONTENTIONS RAISED DURING THE ASSESSMENT PR OCEEDINGS FOR ASSESSMENT YEARS 2007-08, 2008-09 & 2010-11. TH E A.O. MADE ADDITION IN THE HANDS OF THE ASSESSEE ON SIMIL AR BASIS, WHICH WAS CONFIRMED BY THE LD. DRP. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 3 2.1 AGGRIEVED BY THE FINAL ASSESSMENT, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT ON THE FOLLOWING GROUNDS OF APPEAL: - GENERAL 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESSING OFFICER PURSUANT TO THE DIRECTIONS ISSUED BY THE HONBLE DR P IS BAD IN LAW INASMUCH AS FAILED TO APPRECIATE THE FAC TS INVOLVED AND LAW THEREON. 1.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERR ED IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN THE C ASE OF APPELLANTS ITSELF FOR EARLIER YEARS. 1.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE PASSING THE ASSESSMENT ORDER, THE LD. AO HAS ERRED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT AT RS. 29,85,32,019 AS AGAINST RS 4,15,35,230 INCOME RETUR NED BY THE APPELLANT AND THEREFORE, THE ORDER OF THE LD. A O IS BAD IN LAW AND NEEDS TO BE ANNULLED. 1.4 THAT THE LD. AO/DRP HAS GROSSLY ERRED BOTH ON FACTS AND IN LAW BY FOLLOWING THE ASSESSMENT ORDER FOR AY 2007-0 8 WITHOUT REALIZING THAT EACH YEAR IS SELF-CONTAINED WITH RESPECT TO THE ASSESSMENT OF THAT YEAR AND THE DECISION TAK EN IN ANY ONE ASSESSMENT YEAR IS CONCLUSIVE ONLY FOR THAT ASS ESSMENT YEAR AND DOES NOT OPERATE AS RES-JUDICATA IN RESPEC T OF OTHER YEARS. 2. REVENUE EARNED FROM SUPPLY OF SOFTWARE TAXED AS ROYALTY IS INCORRECT 2.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT AMOUNTING TO RS. 5,66,95,292 FROM SUP PLY OF SOFTWARE TO CUSTOMERS IN INDIA AS ROYALTY UNDER S ECTION 9 (L)(VI) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE DOUBLE T AXATION ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 4 AVOIDANCE AGREEMENT BETWEEN INDIA AND UNITED STATES OF AMERICA (INDIA - US TAX TREATY). 2.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS WHERE THE HONBLE ITAT BY FOLLOWING THE DECISIONS OF JURISDICTIONAL HIGH COURT HAS HELD THAT THE CONSIDE RATION RECEIVED BY THE APPELLANT FOR SUPPLY OF SOFTWARE IS FOR COPY RIGHTED ARTICLE AND IS NOT IN THE NATURE OF ROYALTY UNDER ARTICLE 1 2 OF THE INDIA-US TAX TREATY. 2.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HONBLE DRP HAS GROSSLY ERRED IN CONFIRMING THE OBS ERVATION OF THE LD AO THAT SOFTWARE MADE AVAILABLE A PROCESS TO CUSTOMERS WHO USED THE PROCESS WHILE CARRYING OUT THEIR BUSINES S. 2.4 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, LD AO / DRP HAS ERRED IN RELYING ON NOMENCLATURE LICENSE WRITTEN IN THE AGREEMENTS RATHER THAN THE SUBSTANCE OF THE TRANSAC TION WHICH WAS SALE OF GOOD, I.E. SALE OF SOFTWARE. 2.5 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO HAS ERRED IN PLACING RELIANCE ON DECISION OF GRACEMAC CORPORATION [134 TTJ 257 (DELHI)], WHICH IS NOT A G OOD LAW IN VIEW OF VARIOUS LEGAL AND FACTUAL INACCURACIES IN THE OB SERVATIONS RECORDED AND WHICH HAS BEEN DISTINGUISHED BY VARIOU S COURTS SUBSEQUENTLY. 2.6 THAT ON FACTS AND IN LAW, THE HONBLE DRP AND LD. A O HAVE ERRED IN NOT APPRECIATING THAT: 2.6.1 THE DEFINITION OF ROYALTY IS DIFFERENT IN THE ACT AND THE INDIA- US TAX TREATY; 2.6.2 THE BENEFITS AVAILABLE UNDER THE INDIA-US TAX TREA TY WOULD STILL BE AVAILABLE TO THE APPELLANT AS THE AMENDMEN TS IN THE FINANCE ACT 2012 WOULD NOT IMPACT THE TREATY INTERP RETATION OF THE TERM ROYALTY. 2.6.3 THAT ON FACTS AND IN LAW, THE HONBLE DRP AND LD. AO HAVE FAILED TO APPRECIATE THAT THE SALE OF SOFTWARE IS A SALE OF ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 5 COPYRIGHTED ARTICLE AND NOT COPYRIGHT AND ACCOR DINGLY, THE REVENUE FROM SALE OF SOFTWARE IS IN THE NATURE OF B USINESS INCOME NOT TAXABLE UNDER ARTICLE 7 OF INDIA-US TAX TREATY IN THE ABSENCE OF THE PE OF THE APPELLANT IN INDIA. 2.7 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT RELYING AND DISTINGUISHING THE DECISIONS RELIED UPO N BY THE APPELLANT INCLUDING THE HONBLE APEX COURT AND THE JURISDICTIONAL HIGH COURT IN THE CASES OF TATA CONSULTANCY SERVICE S (2004) (271 ITR 401) (SC), INFRASOFT LTD. (264 CTR 239), ERICSS ON A.B. AND METAPATH (343 ITR 370) (DEL HC), NOKIA NETWORKS OY (TS-700-HC- 2012) (DEL HC) ON THE ONE SIDE AND RATHER RELYING O N THE DECISIONS OF OTHER COURTS AND AAR IN THE CASES OF SAMSUNG ELE CTRONICS [(203 TAXMAN 477) (KAR HC) / (TS-696-HC-2011)], MILLENIUM IT SOFTWARE [(338 ITR 391) (AAR) / (TS-585- AAR-2011)], ING VYS YA BANK LTD. DDIT (61 DTR 401, ITAT BANGALORE), CITRIX SYSTEMS ( 343 ITR 1 (AAR NO. 822 OF 2009)) ON THE OTHER SIDE. 3. REVENUE EARNED FROM RENDERING OF MAINTENANCE AND IMPLEMENTATION SERVICES TAXED AS ROYALTY/ FTS IS IN CORRECT 3.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT FROM RENDERING OF MAINTENANCE AND IMP LEMENTATION SERVICES TO CUSTOMERS IN INDIA AMOUNTING TO RS. 19, 59,55,424 AND RS. 15,90,987 RESPECTIVELY AS ROYALTY / FEE FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF INDIA-US TAX TREATY AS WELL AS UNDER SECTION 9(I)(VI)/(VII) OF THE ACT. 3.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERR ED IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT HONBLE ITAT HAS NOT APPRECIATED THAT THE PROVISIONS OF ARTICLE 12(4)(A) WOULD APPLY TO THE REVENUE EARNED. 3.3 THAT ON FACTS AND IN LAW, THE LD. AO HAS ERRED IN H OLDING THAT ARMS LENGTH PAYMENT MADE TO ASPECT INDIA FOR THE S ERVICES RECEIVED, DOES NOT COVER ALL THE SERVICES RENDERED BY ASPECT INDIA AND FAILED TO APPRECIATE THAT NO ADVERSE INFERENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER/TRANSFER PRICING OFFICER W ITH RESPECT TO THE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 6 INTERNATIONAL TRANSACTION UNDERTAKEN BY THE APPELLA NT WITH ASPECT INDIA FOR THE YEAR UNDER CONSIDERATION. 4. PE OF THE APPELLANT ALLEGED IN INDIA IS INCORREC T 4.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN CONCLUDING THAT AP PELLANT HAS A PE IN INDIA IN THE FORM OF ASPECT CONTACT CENTER SO FTWARE INDIA PRIVATE LIMITED (ASPECT INDIA) AND IGNORING THE F ACT WHETHER A PERMANENT ESTABLISHMENT EXISTS OR NOT IS A FACT BAS ED EXERCISE WHICH NEEDS TO BE CARRIED OUT EVERY YEAR WHICH HAS NOT BEEN CARRIED OUT IN THE SUBJECT YEAR. 4.2 THE LD. AO/DRP HAS GROSSLY ERRED BOTH ON FACTS AND IN LAW IN PROPOSING TO HOLD THAT THE ASSESSEE HAS AN INST ALLATION PE IN INDIA IN TERMS OF ARTICLE 5(2)(K) OF THE INDIA-USA TAX TREATY. 4.3 THE LD. AO/DRP HAS GROSSLY ERRED BOTH ON FACTS AND IN LAW IN PROPOSING TO HOLD THAT THE ASSESSEE HAS A DEPEN DENT AGENT PE IN INDIA IN TERMS OF ARTICLE 5(4) OF THE INDIA-USA TAX TREATY. 4.4 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT APPEAL AGAINST TH E ORDER OF HONBLE ITAT HAS BEEN FILED WITH HIGH COURT WITHOUT APPRECIATING THE FACT THAT APPEAL HAS NOT BEEN FILED HONBLE HIG H COURT WITH RESPECT TO EXISTENCE OF PE IN INDIA. 5. REVENUE EARNED FROM THE CUSTOMERS IN SRI LANKA AND MIDDLE- EAST TAXED IN INDIA INCORRECTLY 5.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT FROM SUPPLY OF SOFTWARE AND RENDERING OF PROFESSIONAL, MAINTENANCE, IMPLEMENTATION AND INTEG RATION SERVICES AMOUNTING TO RS. 1,69,19,072 FROM THE CUST OMERS BASED IN SRI LANKA AND MIDDLE EAST UNDER THE PROVISIONS O F ARTICLE 12 OF THE INDIA-US TAX TREATY AND SECTION 9(L)(VI)/ (VII) OF THE ACT. 5.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRED IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN ASSESSEE S OWN CASE FOR ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 7 EARLIER YEARS BY MENTIONING THAT APPEAL AGAINST TH E ORDER OF HONBLE ITAT HAS BEEN FILED WITH HIGH COURT. 5.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN ATTRIBUTING 15 PER CENT OF THE REVENUE EARNED FROM SUPPLY OF HARDWARE TO CUSTOMERS IN SRI LANKA AND MIDDLE EAST TO THE ALLEGED PE IN INDIA, A SPECT INDIA. 6. INCORRECT ATTRIBUTION OF INCOME TO THE PE IN IN DIA 6.1 WITHOUT PREJUDICE TO THE GROUNDS ABOVE, ON FACTS AN D CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DR P HAVE GROSSLY ERRED IN ATTRIBUTING 15 PERCENT OF THE HARD WARE SALE REVENUE EARNED BY THE APPELLANT FROM CUSTOMERS IN I NDIA AND FROM CUSTOMERS IN SRI LANKA & MIDDLE EAST, AMOUNTIN G TO RS. 66,17,566 TO THE ALLEGED PE, ASPECT INDIA BY FOLLOW ING THE ASSESSMENT ORDERS FOR EARLIER YEARS. 6.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HONBLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT APPEAL A GAINST THE ORDER OF HONBLE ITAT HAS BEEN FILED WITH HIGH COUR T. 7 DEDUCTION OF REMUNERATION PAID TO ALLEGED PE NOT AL LOWED 7.1 WITHOUT PREJUDICE TO GROUND 1 TO 6 ABOVE, ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HA S GROSSLY ERRED IN ALLOWING ONLY THE PROPORTIONATE REMUNERATION OF RS.2,07,81,552 AND NOT THE ENTIRE REMUNERATION OF RS. 16,81,35,534 PAID TO ASPECT INDIA BY THE APPELLANT AS A DEDUCTION FORM THE PROF ITS ATTRIBUTED TO THE PE. 7.2 WITHOUT PREJUDICE TO ABOVE, THE LD. AO HAS ERRE D IN NOT FOLLOWING THE ORDER OF EARLIER YEARS PASSED BY HIS OFFICE WHEREIN HIS OFFICE HAS ALLOWED COMPLETE DEDUCTION OF REMUNE RATION PAID TO ASPECT INDIA FROM THE PROFITS ATTRIBUTED TO THE PE WHILE COMPUTING THE TAXABLE PROFITS. 8. ALLEGED PE HAS BEEN REMUNERATED AT ARMS LENGTH PRI CE WITHOUT PREJUDICE TO GROUND 1 TO 7 ABOVE AND OUR CO NTENTION THAT THE APPELLANT DOES NOT HAVE PE IN INDIA, THE LEARNE D AO HAS ERRED ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 8 ON FACTS AND IN LAW IN ATTRIBUTING UNREASONABLE AND EXCESSIVE PROFITS TO THE ALLEGED PE OF THE APPELLANT WITHOUT CONSIDERING THAT ASPECT INDIA HAS BEEN REMUNERATED AT ARMS LENGTH P RICE FOR THE SERVICES PROVIDED TO THE APPELLANT. 9. DRP DIRECTIONS ARE LACONIC WITH RESPECT TO HOW TP P ROVISIONS APPLY TO APPELLANT 9.1 WITHOUT PREJUDICE TO OUR OTHER GROUNDS OF APPEAL, T HE ORDER ISSUED BY THE HONBLE DRP IS LACONIC AS THE DRP HAS FAILED TO ISSUE DIRECTIONS TO THE LD. AO ASCRIBING COGENT AND GERMA NE REASONS FOR THEIR AGREEMENT WITH THE FINDINGS OF THE LD. AO IN THE DRAFT ORDER OF ASSESSMENT UNDER SECTION 144C OF THE ACT. 9.2 THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE ERRED IN HOLDING THAT THE TRANSFER PRICING PROVISIONS ARE APPLICABLE TO THE APPELLANT. THE APP ELLANTS TRANSACTION OF SALE OF ITS PRODUCTS IN INDIA DIRECT LY TO THIRD PARTIES OR THROUGH CHANNEL PARTNERS DOES NOT QUALIFY AS AN INTERNATIONAL TRANSACTION (DEFINED UNDER THE ACT) AS IT DOES NOT ENTAIL A TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE ERRED BY NOT APPRECIATING THAT TRAN SFER PRICING PROVISIONS ARE NOT APPLICABLE IN THE INSTANT CASE A ND THEREFORE, ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271 BA OF THE ACT FOR NOT FURNISHING THE ACCOUNTANTS REPORT IN F ORM 3CEB AS PRESCRIBED UNDER SECTION 92E OF THE ACT. 10. NON GRANT OF TDS CREDIT 10.1 THAT THE LD. AO, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HAS ERRED IN GRANTING TDS CREDIT ONLY TO TH E EXTENT OF RS. 2,50,90,499 ASAGAINST TDS CREDIT OF RS. 3,33,78,415 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 11. LEVY OF INTEREST UNDER SECTION 234B OF THE ACT 11.1 THAT THE LD. AO, ON FACTS AND CIRCUMSTANCES OF THEC ASE AND IN LAW, HAS ERRED IN CHARGING INTEREST UNDER SECTIO N 234B OF THE ACT. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 9 12. INITIATION OF PENALTY PROCEEDINGS 12.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING THE PENALTY PROCEEDI NGS UNDER SECTION 271(L)(C) OF THE ACT HOLDING THAT THE APPEL LANT HAS CONCEALED THE PARTICULARS OF ITS INCOME AS ALSO FURNISHED INA CCURATE PARTICULARS THEREOF. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.0 BRIEF FACTS OF THE CASE FOR ASSESSMENT YEAR 201 3-14 ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR AS SESSMENT YEAR 2013-14 ON 30.09.2013 DECLARING INCOME OF RS. 98,92 ,790/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 1 43(2) OF THE I.T. ACT, 1961, WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE FACTUAL MATRIX AND BUSINESS M ODEL OF THIS YEAR WAS DIFFERENT FROM ASSESSMENT YEAR 2007-0 8 AND WHY THE ASSESSMENT SHOULD NOT BE COMPLETED ON THE L INES OF EARLIER ASSESSMENT YEARS. VIDE ITS REPLY DATED 07. 03.2016, THE ASSESSEE SUBMITTED THAT THERE HAS BEEN NO CHANG E IN THE BUSINESS MODEL OF ASSESSEE VIS--VIS THE EARLIER YE ARS. THE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 10 ASSESSEE CONTENDED THAT IT DOES NOT HAVE PE IN INDI A. IT FURTHER CONTENDED, WITHOUT PREJUDICE TO THE CONTENTION REGA RDING THE ABSENCE OF PE IN INDIA, THAT THERE CANNOT BE ANY BA SIS FOR ATTRIBUTING 15% OF THE REVENUES EARNED FROM THE SAL E OF HARDWARE TO END USERS IN INDIA, MIDDLE EAST AND SRI LANKA. THE A.O. / LD. DRP CONSIDERED THE CONTENTIONS RAISE D BY THE ASSESSEE AND FOUND THAT THESE ARE SIMILAR CONTENTIO NS RAISED DURING THE ASSESSMENT PROCEEDINGS FOR T H E ASSESSMEN T YEARS 2007-08, 2008-09 & 2010-11. THE A.O. MADE ADDITION IN THE HANDS OF THE ASSESSEE ON SIMILAR BASIS, WHICH WAS C ONFIRMED BY THE LD. DRP. 3.1 AGGRIEVED BY THE FINAL ASSESSMENT, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT ON THE FOLLOWING GROUNDS OF APPEAL:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT, RESPECTFULLY CRAVES LEAV E TO PREFER AN APPEAL UNDER SECTION 253 OF THE ACT AGAIN ST THE ORDER DATED JANUARY 12, 2017, PASSED BY THE LD. AO UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE ACT PURSUANT TO THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL - I ('HON'BLE DRP' ), NEW DELHI ON THE FOLLOWING GROUNDS: 1. GENERAL : 1.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. AO PURSUANT TO THE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 11 DIRECTIONS ISSUED BY HON'BLE DRP IS BAD IN LAW IN A S MUCH AS FAILED TO APPRECIATE THE FACTS INVOLVED AND LAW THEREON. 1.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HON'BLE IT AT IN T HE CASE OF APPELLANT'S ITSELF FOR EARLIER YEARS. 1.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE PASSING THE ASSESSMENT ORDER, THE LD. AO HAS ERRED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT AT RS.33,33,57,812/- AS AGAINST RS. 98,92,789/- INCOME RETURNED BY THE APPELLANT AND THEREFORE, THE ORDER OF THE LD. AO IS BAD IN LAW AN D NEEDS TO BE ANNULLED. 1.4 THAT THE LD. AO HAS GROSSLY ERRED BOTH ON FACTS AND IN LAW BY FOLLOWING THE ASSESSMENT ORDER FOR A Y 2007- 08 WITHOUT REALIZING THAT EACH YEAR IS SELF CONTAINED WITH RESPECT TO THE ASSESSMENT OF THAT YEAR AND THE DECI SION TAKEN IN ANY ONE ASSESSMENT YEAR IS CONCLUSIVE ONLY FOR THAT ASSESSMENT YEAR AND DOES NOT OPERATE AS RE S- JUDICATA IN RESPECT OF OTHER YEARS. 2. REVENUE EARNED FROM SUPPLY OF SOFTWARE TAXED A S 'ROYALTY' IS INCORRECT: 2.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT AMOUNTING TO RS.15,54,19,304/- FRO M SUPPLY OF SOFTWARE TO CUSTOMERS IN INDIA AS 'ROYALT Y' UNDER SECTION 9 (1)(VI) OF THE ACT AS WELL AS UNDER ARTIC LE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND UNITED STATES OF AMERICA ('INDIA - US TAX TREATY'). 2.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS WHERE THE HON'BLE ITAT BY FOLLOWI NG THE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 12 DECISIONS OF JURISDICTIONAL HIGH COURT HAS HELD THA T THE CONSIDERATION RECEIVED BY THE APPELLANT FOR SUPPLY OF SOFTWARE IS FOR COPYRIGHTED ARTICLE AND IS NOT IN T HE NATURE OF ROYALTY UNDER ARTICLE 12 OF THE INDIA-US TAX TREATY . 2.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HON'BLE DRP HAS GROSSLY ERRED IN CONFIRMING THE OBS ERVATION OF THE LD. AO THAT SOFTWARE 'MADE AVAILABLE' A 'PRO CESS' TO CUSTOMERS WHO USED THE 'PROCESS' WHILE CARRYING OUT THEIR BUSINESS. 2.4 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD AO HAS ERRED IN RELYING ON NOMENCLATURE 'LICENSE' WR ITTEN IN THE AGREEMENTS RATHER THAN THE SUBSTANCE OF THE TRANSAC TION WHICH WAS SALE OF GOOD, I.E. SALE OF SOFTWARE. 2.5 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO HAS ERRED IN PLACING RELIANCE ON DECISION OF G RACEMAC CORPORATION [134 TTJ 257(DELHI)], WHICH IS NOT A GO OD LAW IN VIEW OF VARIOUS LEGAL AND FACTUAL INACCURACIES IN T HE OBSERVATIONS RECORDED AND WHICH HAS BEEN DISTINGUIS HED BY VARIOUS COURTS SUBSEQUENTLY. 2.6 THAT ON FACTS AND IN LAW, THE HON'BLE DRP AND LD. A O HAVE ERRED IN NOT APPRECIATING THAT: 2.6.1 THE DEFINITION OF ROYALTY IS DIFFERENT IN THE ACT A ND THE INDIA- US TAX TREATY; 2.6.2 THE BENEFITS AVAILABLE UNDER THE INDIA-US TAX TREA TY WOULD STILL BE AVAILABLE TO THE APPELLANT AS THE AMENDMEN TS IN THE FINANCE ACT 2012 WOULD NOT IMPACT THE TREATY INTERP RETATION OF THE TERM ROYALTY. 2.6.3 THAT ON FACTS AND IN LAW, THE HON'BLE DRP AND LD. AO HAVE FAILED TO APPRECIATE THAT THE SALE OF SOFTWARE IS A SALE OF 'COPYRIGHTED ARTICLE' AND NOT 'COPYRIGHT' AND ACCOR DINGLY, THE REVENUE FROM SALE OF SOFTWARE IS IN THE NATURE OF B USINESS INCOME NOT TAXABLE UNDER ARTICLE 7 OF INDIA- US TAX TREATY IN THE ABSENCE OF THE PE OF THE APPELLANT IN INDIA. 2.7 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT RELYING AND DISTINGUISHING THE DECISIONS RELIED UPO N BY THE APPELLANT INCLUDING THE HON'BLE APEX COURT AND THE JURISDICTIONAL HIGH COURT IN THE CASES OF TATA CONS ULTANCY SERVICES (2004) (271 ITR 401) (SC), INFRASOFT LTD. (264 CTR 239), ERICSSON A.B. AND METAPATH (343 ITR 370) (DEL HC), NOKIA NETWORKS OY (TS-700-HC-2012) (DEL. HC) ON THE ONE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 13 SIDE AND RATHER RELYING ON THE DECISIONS OF OTHER C OURTS AND AAR IN THE CASES OF SAMSUNG ELECTRONICS [(203 TAXMA N 477) (KAR. HC) / (TS-696-HC-2011)], MILLENIUM IT SOFTWAR E [(338 ITR 391) (AAR) / (TS-585- AAR-2011)], ING VYSYA BAN K LTD. DDIT (61 DTR 401, ITAT BANGALORE), CITRIX SYSTEMS ( 343 ITR 1 (AAR NO. 822 OF 2009)) ON THE OTHER SIDE. 3 REVENUE EARNED FROM RENDERING OF MAINTENANCE AND IMPLEMENTATION SERVICES TAXED AS ROYALTY/ FTS IS IN CORRECT 3.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT FROM RENDERING OF MAINTENANCE AND IMPLEMENTATION SERVICES TO CUSTOMERS IN INDIA AMOUN TING TO RS.15,01,65,574/- AND RS. 3,09,13,099 RESPECTIV ELY AS 'ROYALTY' / 'FEE FOR TECHNICAL SERVICES' UNDER ARTICLE 12 OF IND IA-US TAX TREATY AS WELL AS UNDER SECTION 9(I)(VI)/(VII) OF THE ACT. 3.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT THE HONBLE IT AT HAS NOT APPRECIATED THAT THE PROVISIONS OF ARTICLE 12(4)( A ) WOULD APPLY TO THE REVENUE EARNED. 3.3 THAT ON FACTS AND IN LAW, THE LD. AO HAS ERRED IN H OLDING THAT ARMS LENGTH PAYMENT MADE TO ASPECT INDIA FOR THE S ERVICES RECEIVED, DOES NOT COVER ALL THE SERVICES RENDERED BY ASPECT INDIA AND FAILED TO APPRECIATE THAT NO ADVERSE INFE RENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER/ TRANSFER PRICI NG OFFICER WITH RESPECT TO THE INTERNATIONAL TRANSACTION UNDER TAKEN BY THE APPELLANT WITH ASPECT INDIA FOR THE YEAR UNDER CONSIDERATION. 4 PE OF THE APPELLANT ALLEGED IN INDIA IS INCORRECT 4.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER/DRP HAVE GROSSLY ERRED IN CON CLUDING THAT THE APPELLANT HAS A PE IN INDIA IN THE FORM OF APECT CONTACT CENTER SOFTWARE INDIA PRIVATE LIMITED ('ASP ECT INDIA') AND IGNORING THE FACT WHETHER A PERMANENT ESTABLISH MENT ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 14 EXISTS OR NOT IS A FACT BASED EXERCISE WHICH NEEDS TO BE CARRIED OUT EVERY YEAR WHICH HAS NOT BEEN CARRIED O UT IN THE SUBJECT YEAR. 4.2 THAT THE LD. ASSESSING OFFICER/DRP HAS GROSSLY ERRE D BOTH ON FACTS AND IN LAW IN PROPOSING TO HOLD THAT THE ASSE SSEE HAS AN INSTALLATION PE IN INDIA IN TERMS OF ARTICLE 5 (2)(K) OF THE INDIA-USA TAX TREATY. 4.3 THE LD. AO/DRP HAS GROSSLY ERRED BOTH ON FACTS AND IN LAW IN PROPOSING TO HOLD THAT THE ASSESSEE HAS A 'DEPEN DANT AGENT PE' IN INDIA IN TERMS OF ARTICLE 5(4) OF THE INDIA-USA TAX TREATY. 4.4 THAT ON FACTS AND IN LAW, THE LD. AO/DRP HAVE ERRED IN NOT FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT APPEAL AGAINS T THE ORDER OF HON'BLE ITAT HAS BEEN FILED WITH HIGH COURT WITH OUT APPRECIATING THE FACT THAT THE APPEAL HAS NOT BEEN FILED HONBLE HIGH COURT WITH RESPECT TO EXISTENCE OF PE IN INDIA. 5 REVENUE EARNED FROM THE CUSTOMERS IN SRI LANKA AND MIDDLE- EAST TAXED IN INDIA INCORRECTLY 5.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN TAXING THE REVENUE EARNED BY THE APPELLANT FROM SUPPLY OF SOFTWARE AND RENDER ING OF PROFESSIONAL, MAINTENANCE, IMPLEMENTATION AND INTEG RATION SERVICES AMOUNTING TO RS.37,17,389 FROM THE CUSTOME RS BASED IN SRI LANKA AND MIDDLE EAST UNDER THE PROVIS IONS OF ARTICLE 12 OF THE INDIA-US TAX TREATY AND SECTION 9 (L)(VI)/ (VII) OF THE ACT. 5.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT APPEAL AGAINST THE ORDER OF HON'BLE ITAT HAS BEEN FILED WITH HIGH COURT. 5.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE GROSSLY ERRED IN ATTRIBUTING 15 PER CENT OF THE REVENUE EARNED FROM SUPPLY OF HARDWARE TO CUSTO MERS IN ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 15 SRI LANKA AND MIDDLE EAST TO THE ALLEGED PE IN INDI A, ASPECT INDIA. 6 INCORRECT ATTRIBUTION OF INCOME TO THE PE IN INDIA 6.1 WITHOUT PREJUDICE TO THE GROUNDS ABOVE, ON FACTS AN D CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DR P HAVE GROSSLY ERRED IN ATTRIBUTING 15 PERCENT OF THE HARD WARE SALE REVENUE EARNED BY THE APPELLANT FROM CUSTOMERS IN I NDIA AND FROM CUSTOMERS IN SRI LANKA & MIDDLE EAST, AMOUNTIN G TO RS. 29,35,021 TO THE ALLEGED PE, ASPECT INDIA BY FOLLOW ING THE ASSESSMENT ORDERS FOR EARLIER YEARS. 6.2 THAT ON FACTS AND IN LAW, THE LD. AO/ DRP HAVE ERRE D IN NOT FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE S OWN CASE FOR EARLIER YEARS BY MENTIONING THAT APPEAL AGAINST THE ORDER OF HON'BLE ITAT HAS BEEN FILED WITH HIGH COURT. 7 DEDUCTION OF REMUNERATION PAID TO ALLEGED PE NOT AL LOWED. 7.1 WITHOUT PREJUDICE TO GROUND 1 TO 6 ABOVE, ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HA S GROSSLY ERRED IN ALLOWING ONLY THE PROPORTIONATE REMUNERATI ON OF RS.96,85,364 AND NOT THE ENTIRE REMUNERATION OF RS. 17,80,39,781 PAID TO ASPECT INDIA BY THE APPELLANT AS A DEDUCTION FROM THE PROFITS ATTRIBUTED TO THE PE. 7.2 WITHOUT PREJUDICE TO ABOVE, THE LD. AO HAS ERRED IN NOT FOLLOWING THE ORDER OF EARLIER YEARS PASSED BY HIS OFFICE WHEREIN HIS OFFICE HAS ALLOWED THE COMPLETE DEDUCTI ON OF REMUNERATION PAID TO ASPECT INDIA FROM THE PROFITS ATTRIBUTED TO THE PE WHILE COMPUTING THE TAXABLE PROFITS. 8 ALLEGED PE HAS BEEN REMUNERATED AT ARM'S LENGTH PRI CE WITHOUT PREJUDICE TO GROUND I TO 7 ABOVE AND OUR CO NTENTION THAT THE APPELLANT DOES NOT HAVE PE IN INDIA, THE LEARNE D AO HAS ERRED ON FACTS AND IN LAW IN ATTRIBUTING UNREASONABLE AND EXCESSIVE PROFITS TO THE ALLEGED PE OF THE APPELLANT WITHOUT CONSIDERING THAT ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 16 ASPECT INDIA HAS BEEN REMUNERATED AT ARM'S LENGTH P RICE FOR THE SERVICES PROVIDED TO THE APPELLANT. 9 DRP DIRECTIONS ARE LACONIC WITH RESPECT TO HOW TP P ROVISIONS APPLY TO APPELLANT 9.1 WITHOUT PREJUDICE TO OUR OTHER GROUNDS OF APPEAL, T HE ORDER ISSUED BY THE HON'BLE DRP IS LACONIC 'AS THE DRP HA S FAILED TO ISSUE DIRECTIONS TO THE LD. AO ASCRIBING COGENT AND GERMANE REASONS FOR THEIR AGREEMENT WITH THE FINDINGS OF TH E LD. AO IN THE DRAFT ORDER OF ASSESSMENT UNDER SECTION 144C OF THE ACT. 9.2 THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE ERRED IN HOLDING THAT THE TRANSFER PRICING PROVISIONS ARE APPLICABLE TO THE APPELLANT. THE APPELLANT'S TRANSACTION OF SALE OF ITS PRODUCTS IN INDIA DIRECTLY TO THIRD PARTIES OR THROUGH CHANNEL PARTNERS DOES N OT QUALIFY AS AN 'INTERNATIONAL TRANSACTION' (DEFINED UNDER TH E ACT) AS IT DOES NOT ENTAIL A TRANSACTION BETWEEN TWO 'ASSOCIAT ED ENTERPRISES'. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/DRP HAVE ERRED BY NOT APPRECIATING THAT TRAN SFER PRICING PROVISIONS ARE NOT APPLICABLE IN THE INSTANT CASE A ND THEREFORE, ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271 BA OF THE ACT FOR NOT FURNISHING THE ACCOUNTANT'S REPORT IN F ORM 3CEB AS PRESCRIBED UNDER SECTION 92E OF THE ACT. 10 NON GRANT OF TDS CREDIT 10.1 THAT THE LD. AO, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HAS ERRED IN GRANTING TDS CREDIT ONLY TO TH E EXTENT OF RS. 2,03,48,782 AS AGAINST TDS CREDIT OF RS. 2,14,5 0,734 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 11 INITIATION OF PENALTY PROCEEDINGS 11.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING THE PENALTY PROCEEDI NGS UNDER SECTION 271(1)(C) OF THE ACT HOLDING THAT THE APPEL LANT HAS ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 17 CONCEALED THE PARTICULARS OF ITS INCOME AS ALSO FUR NISHED INACCURATE PARTICULARS THEREOF. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUN DS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.0 SINCE BOTH THE APPEALS INVOLVE IDENTICAL ISSUES , THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 5.0 AT THE OUTSET, IT WAS SUBMITTED BY THE LD. AR T HAT THE ISSUES RAISED IN THE PRESENT APPEALS ARE SQUARELY COVERED BY THE ORDERS OF THIS TRIBUNAL FOR THE PREVIOUS ASSESSMENTS YEARS . FURTHER, THE APPEALS FILED BY THE DEPARTMENT AGAINST SUCH ORDERS ALSO STAND DISMISSED BY THE HONBLE DELHI HIGH COURT. IT WAS F URTHER SUBMITTED THAT THERE WAS NO CHANGE IN THE FACTUAL M ATRIX IN BOTH THE YEARS UNDER CONSIDERATION VIS-A-VIS THE PREVIOUS ASSESSMENT YEARS 2003-04, 2004-05, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12. 6.0 THE LD. C.I.T. DR AGREED THAT ALL THE ISSUES IN ASSESSEES APPEALS WERE IDENTICAL TO THE ISSUES IN THE PREVIOU S ASSESSMENT YEARS WHICH HAD BEEN ADJUDICATED BY THE ITAT IN ASS ESSMENT YEARS 2003-04, 2004-05, 2007-08, 2008-09 AND 2009-1 0 AND ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 18 2010-11 AND 2011-12 BUT ALL THE SAME SUBMITTED THAT HE WAS PLACING RELIANCE ON THE ORDERS OF THE LOWER AUTHORI TIES AS WELL AS THE DIRECTIONS OF THE LD. DRP AND WAS SUPPORTING TH EM. 7.0 GROUND NO. 1 IN BOTH THE APPEALS BEING GENER AL IN NATURE ARE NOT BEING ADJUDICATED UPON. 7.1.0 WITH REGARD TO GROUND NO. 2 IN ITA 1452/DE L/2017, IT WAS SUBMITTED THAT THIS GROUND HAS BEEN DEALT EXTEN SIVELY BY THE ITAT IN ITS ORDER DATED 18.5.2015 IN ITA NOS. 1124 AND 1125/DEL/2014 WHEREIN THE RELEVANT FINDINGS ARE IN PARA 41 AND 42 WHICH READ AS UNDER:- 41. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E AS WELL AS THE LEARNED D.R. RELIED ON SEVERAL DECISION S OF THE HIGH COURT AND TRIBUNAL RENDERED ON THE SUBJECT . THESE DECISIONS ARE NOT BEING CONSIDERED AS THE ISS UE IS EXTENSIVELY DEALT BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF M/S ERICSSON A.B. AND INFRASO FT LTD (SUPRA) WHICH ARE BINDING ON THIS TRIBUNAL. WE OBSERVE THAT ALL THE ARGUMENTS PUT FORTH BY THE REV ENUE AND THE ASSESSEE ARE CONSIDERED AND ANSWERED IN THESE DECISIONS. FURTHER, THE DELHI HIGH COURT IN INFRASOFT HAS EXPRESSED ITS DISAGREEMENT WITH THE V IEW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD. HENCE, THE DECISIONS RE LIED BY THE LEARNED CIT-DR IN THE CASE OF SAMSUNG ELECTRONICS AND GRACEMAC CORPORATION (SUPRA) DOES N OT HELP THE CASE OF THE REVENUE, AS WE ARE UNDER THE JURISDICTION OF THE HONBLE DELHI HIGH COURT. 7.1.1 IT HAS ALSO BEEN SUBMITTED THAT THE DEP ARTMENT HAD CHALLENGED THE AFORESAID ORDER OF THE ITAT BEFORE T HE HONBLE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 19 DELHI HIGH COURT AND THE HONBLE DELHI HIGH COURT I N ITA 909/2015 AFFIRMED THE FINDINGS OF THE TRIBUNAL. TH IS ORDER WAS ALSO FOLLOWED BY THE ITAT IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2011-12 IN ITA 1842/DEL/2016 VIDE ORDER DATED 27.06.2016. 7.1.2 THE LD. CIT DR COULD NOT DISPUTE THE CON TENTIONS OF THE LD. AR. 7.1.3 SINCE THERE IS NO CHANGE IN THE FACTUAL P OSITION FOR THE YEAR UNDER CONSIDERATION VIS-A-VIS THE PREVIOUS ASSESSMENT YEARS AND ALSO IN VIEW OF THE PRONOUNCEMENT OF THE HONBL E JURISDICTIONAL HIGH COURT AS AFORE MENTIONED, WE AG REE THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER IN THIS REG ARD CANNOT BE SUSTAINED. ACCORDINGLY, WE ALLOW THE GROUND NO. 2 RAISED BY THE ASSESSEE. 7.1.4 GROUND NO. 2 IN ITA 1453/DEL/2017 IS IDENTI CAL TO THE ASSESSEES APPEAL BEARING ITA NO. 1452/DEL/2017 FOR ASSESSMENT YEAR 2012-13 WHICH WE HAVE ALREADY ALLOWED IN FAVOU R OF THE ASSESSEE IN THE PRECEDING PARAGRAPHS. ACCORDINGLY, THERE BEING NO CHANGE IN THE FACTUAL POSITION FOR THE YEAR UNDE R CONSIDERATION AND ON THE SAME REASONING AS MENTIONED IN THE PRECE DING PARAGRAPHS, WE ALLOW GROUND NO.2 IN ITA 1453/DEL/20 17 ALSO. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 20 7.2.0 WITH RESPECT TO GROUND NO. 3 IN ITA 1452/DE L/2017, IT HAS BEEN SUBMITTED THAT THIS GROUND ALSO HAS BEEN DEALT EXTENSIVELY BY THE ITAT IN ITA NO. 1124 AND 1125/DEL/2014 VIDE ORDER DATED 18.05.2015 IN PARAGRAPHS 52 AND 56 AS UNDER:- 52. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND PERUSED THE RELEVANT CLAUSES OF THE AGREEMENT WHICH DEAL WITH THE ABOVE SERVICES. SERVICES HAVE BEEN DEFINED IN THE AGREEMENT TO INCLUDE INSTALLATION SERVICES, MAINTENANCE SERVICES, EDUCATION SERVICES, PROFESSIONAL SERVICES AND T&M SERVICES, ALL AS HEREINAFTER DEFINED, AND ANY OTHER SERVICES PROVIDE D TO CUSTOMER BY OR ON BEHALF OF ASPECT, TOGETHER WITH T HE RELATED DELIVERABLES PROVIDED UNDER SERVICES. .. 56. IN THE PRESENT CASE, THE UNDISPUTED FACT IS TH AT THE IMPLEMENTATION SERVICE IS INEXTRICABLY AND ESSENTIA LLY LINKED TO THE SUPPLY OF SOFTWARE. IN VIEW OF OUR DE CISION IN GROUND NO 2 THAT THE SUPPLY OF SOFTWARE IS NOT TAXABLE AS ROYALTY UNDER THE TAX TREATY, THE PROV ISION CONTAINED IN CLAUSE (A) TO ARTICLE 12 (4) WOULD NOT APPLY TO BOTH IMPLEMENTATION AND MAINTENANCE SERVICES. FURTHER THERE IS NOTHING TO SHOW THAT THESE SERVICE S PROVIDED BY THE ASSESSEE ACTUALLY MADE AVAILABLE TO THE END USER/ CHANNEL PARTNERS ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES SO AS TO ENABLE THEM TO APPLY THE SAID TECHNOLOGY. UND ER THESE CIRCUMSTANCES, WE UPHOLD THE ARGUMENTS OF THE LEARNED COUNSEL OF THE ASSESSEE AND ALLOW THE GROUN D. 7.2.1 IT HAS ALSO BEEN SUBMITTED THAT ON THE DEPA RTMENT APPROACHING THE HONBLE DELHI HIGH COURT AGAINST TH IS FINDING, THE HONBLE HIGH COURT DECLINED TO FRAME A SUBSTANT IAL QUESTION OF LAW ON THIS ISSUE AND FURTHER THIS DECISION WAS ALSO FOLLOWED BY ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 21 THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 ALSO IN ITA NO. 1842/DEL/2016. 7.2.2 THE LD. CIT DR COULD NOT DISPUTE THE CONTEN TIONS OF THE LD. AR. 7.2.3 ACCORDINGLY, AS IT IS UNDISPUTED THAT THERE IS NO CHANGE IN THE FACTUAL POSITION FOR THE YEAR UNDER CONSIDERATI ON, THE ADDITIONS PROPOSED BY THE ASSESSING OFFICER ON THIS GROUND ALSO ARE SET ASIDE. WE ALSO NOTE THAT THE DEPARTMENT ITS ELF HAS ACCEPTED THE ASSESSEES STAND ON THIS ISSUE IN THE SUBSEQUENT ASSESSMENT YEAR 2014-15. 7.2.4 GROUND NO. 3 IN ITA 1453/DEL/2017 IS IDEN TICAL TO GROUND NO. 3 RAISED BY THE ASSESSEE IN ITA NO. 1452 /DEL/2017 AND ON SIMILAR REASONING, WE ALLOW GROUND NO. 3 IN THIS YEAR ALSO. 7.3.0 REGARDING GROUND NO. 4 IN ITA 1452/DEL/2 017, IT HAS BEEN SUBMITTED THAT THIS GROUND IS ALSO COVERED BY THE ORDER OF THE ITAT DATED 18.05.2005 IN ITA NO. 1124 AND 1125/ DEL/2014 AND THE RELEVANT PARAGRAPH IS 91 WHICH IS REPRODUCE D AS UNDER:- 91. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD. THE EXISTENCE OF PE IN INDI A IS THE MATTER OF DISPUTE IN THIS GROUND. REVENUE HAS CONTENDED THAT THE ASSESSEE HAS FIXED PE, INSTALLAT ION PE AND DEPENDENT AGENT PE IN INDIA. OUR FINDING IN RESPECT OF EACH OF THE FORMS OF PE IS AS UNDER: ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 22 INSTALLATION PE: THE REVENUE CONTENDS THAT SINCE INSTALLATION AND SUPPORT SERVICES ARE PROVIDED BY ASPECT INDIA, THERE EXISTS AN INSTALLATION PE OF TH E ASSESSEE IN INDIA. AS PER ARTICLE 5(2) OF INDIA U SA TREATY, THE TERM PERMANENT ESTABLISHMENT INCLUDES ESPECIALLY THE FOLLOWING: (I) CLAUSE (J): AN INSTALLATION OR STRUCTURE USED FOR T HE EXPLORATION OR EXPLOITATION OF NATURAL RESOURCES, B UT, ONLY IF SO USED FOR A PERIOD OF MORE THAN 120 DAYS IN ANY TWELVE-MONTH PERIOD; (II) CLAUSE (K): A BUILDING SITE OR CONSTRUCTION, INSTAL LATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJECT S OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE T HAN 120 DAYS IN ANY TWELVE-MONTH PERIOD. THERE IS NO DISPUTE THAT CLAUSE (J) ABOVE IS NOT APPLICABLE. THE DISPUTE IS WITH REGARD TO EXISTENCE OF PE UNDER CLAUSE (K) ABOVE. AS PER ARTICLE 5(2)(K), A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSE MBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THE REWITH IS REGARDED AS PE IS SUCH PROJECT OR ACTIVITIES (TO GETHER WITH OTHER SUCH SITES, PROJECTS OR ACTIVITIES, IF A NY) CONTINUE FOR A PERIOD OF MORE THAN 120 DAYS IN ANY TWELVE-MONTH PERIOD. ARTICLE 5(2)(K) SHOULD BE READ AS A WHOLE. THE TERM IN CONNECTION THEREWITH WOULD APPLY FOR THE ENTIRE PRECEDING WORDS VIZ., A BUILD ING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJ ECT OR SUPERVISORY ACTIVITIES. THE TERM INSTALLATION PROJ ECT CANNOT BE READ DE-HORS THE WORDS ACCOMPANYING IT. THUS, WHEN THE ENTIRE CLAUSE IS RED AS A WHOLE, IT WOULD BE EVIDENT THAT THE INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES SHOULD BE IN CONNECTION WITH THE BUILDING SITE OR CONSTRUCTION. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE DOES NOT CARRY ON BUSINESS IN INDIA THROUGH A BUILDING SITE OR CONSTRUCTION. CONSEQUENTLY, WE ARE OF THE VIEW THAT THERE IS NO INSTALLATION PE OF THE ASSESSEE IN INDIA. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 23 DEPENDENT AGENT PE: ARTICLE 5(4) OF INDIA USA TRE ATY DEALS WITH THE DEPENDENT AGENT PE. IT READS AS UNDE R: NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2 WHERE A PERSON-OTHER THAN AN AGENT OF AN INDEPENDEN T STATUS TO WHOM PARAGRAPH 5 APPLIES IS ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED STATE, IF: (A) HE HAS AND HABITUALLY EXERCISES IN THE FIRST MENTIO NED STATE AN AUTHORITY TO CONCLUDE ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO TH OSE MENTIONED IN PARAGRAPH 3 WHICH, IF EXERCISED THROUG H A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THAT FIXE D PLACE OF BUSINESS A PERMANENT ESTABLISHMENT UNDER THE PROVISIONS OF THAT PARAGRAPH; (B) HE HAS NO SUCH AUTHORITY BUT HABITUALLY MAINTAINS I N THE FIRST MENTIONED STATE A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTERPRISE, AND SOME ADDITIONAL ACTIVITIES CONDUCTED IN THE STATE ON BEH ALF OF THE ENTERPRISE HAVE CONTRIBUTED TO THE SALE OF THE GOODS OR MERCHANDISE; OR (C) HE HABITUALLY SECURES ORDERS IN THE FIRST-MENTIONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE. THE FIRST AND FOREMOST REQUIREMENT UNDER ARTICLE 5(4) I S THAT THE SAID ARTICLE WILL APPLY TO A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES. PARAGRAPH 5 OF ARTICLE STATES AS UNDER: 5. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN OTHER CONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A BROKER, GENE RAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, PROVIDED THAT SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN AGENT ARE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 24 DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THAT ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE ARE NOT MADE UNDER ARMS LENGTH CONDITIONS, HE SHALL NOT BE CONSIDERED AN AG ENT OF INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH. PARAGRAPH 5 LAYS DOWN CONDITIONS AS TO WHEN CAN AN AGENT; BROKER IS REGARDED AS DEPENDENT AGENT OR INDEPENDENT AGENT. IF THE AGENT IS DEVOTED WHOLLY O R ALMOST WHOLLY ON BEHALF OF THE ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGENT AND THE ENTERPRISE A RE NOT MADE UNDER ARMS LENGTH CONDITIONS, THE AGENT I S NOT CONSIDERED AS AGENT OF INDEPENDENT STATUS. IN SUCH CIRCUMSTANCES, THE AGENT WOULD BE REGARDED AS DEPENDENT AGENT. FURTHER, THE DEPENDENT AGENT HAS TO SATISFY ANY OF THE TESTS LAID DOWN IN (A),(B) OR (C) ABOVE IN ORDER TO CONSTITUTE A DEPENDENT AGENT PE O F THE NON- RESIDENT. COMING TO THE FACTS OF THE PRESE NT CASE, THE ASSESSEE HAS ARGUED THAT ASPECT INDIA NEITHER SECURES ORDERS NOR HABITUALLY EXERCISES AN AUTHORITY TO CONCLUDE ON BEHALF OF THE ASSESSEE. IT IS, THEREFORE, CONTENDED THAT THERE IS NO DEPENDENT AGE NT PE IN INDIA. THE REVENUE, ON THE OTHER HAND, HAS ARGUED THAT THE ASSESSEE HAS NOT SUBMITTED PROPER FACTS TO SUBSTANTIATE ITS CONTENTION. IT IS SUBMITT ED THAT THE ASSESSEE HAS NOT SUBMITTED INFORMATION ON SALE OF EQUIPMENT AND LICENSING OF SOFTWARE THAT ARE DONE DIRECTLY BY ASPECT INDIA TO CUSTOMERS AND THOSE DON E THROUGH CHANNEL PARTNERS. IT IS CONTENDED THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT IT IDENTIFIES CUSTOMERS AND MAKE SALES. THE STATEMENT RECORDED FROM THE DIRECTOR, SALES OF ASPECT INDIA IS STATED TO BE CONTRARY TO THE CLAIM OF THE ASSESSEE THAT ASPECT I NDIA ONLY ACTS AS A COMMUNICATION CHANNEL BETWEEN THE ASSESSEE AND THE CUSTOMERS. SIMILARLY, THE ASSESSEE S CLAIM THAT MAJORITY OF SALES ARE MADE TO CHANNEL PARTNERS IS STATED TO BE FACTUALLY INCORRECT SINCE INFORMATION ON ALL THE CHANNEL PARTNERS, DATE OF AGREEMENT AND SALES MADE THROUGH THEM IS NOT SUBMITTED. IT IS ARGUED THAT COPY OF I APPROVE SY STEM HAS NOT BEEN SUBMITTED BY THE ASSESSEE FOR FACTUAL ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 25 VERIFICATION. CONSIDERING THESE FACTS, WE ARE OF TH E VIEW THAT BOTH THE REVENUE AND THE ASSESSEE HAVE NO T BEEN ABLE TO DEMONSTRATE THE EXISTENCE OR OTHERWISE OF THE DEPENDENT AGENT PE. IN THE ABSENCE OF PROPER INFORMATION IN THIS REGARD, WE ARE UNABLE TO DECIDE WHETHER THE ASSESSEE HAS A DEPENDENT AGENT PE IN INDIA. WE ACCORDINGLY, SET ASIDE THE ISSUE OF DEPENDENT AGENT PE AND RESTORE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 7.3.1 IT HAS ALSO BEEN SUBMITTED THAT THE REVENUE HAS NOT FILED ANY APPEAL BEFORE THE HONBLE HIGH COURT ON THE ISS UE OF INSTALLATION PE WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND THUS THIS ISSUE STANDS ACCEPTED BY THE REVENUE. IT HAS ALSO BEEN SUBMITTED THAT THE ITAT H AS ALSO FOLLOWED THIS ORDER IN ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2011-12 IN ITA NO. 1842/DEL/2016. 7.3.2 THE LD. CIT DR COULD NOT DISPUTE THESE CO NTENTIONS OF THE LD. AR. 7.3.3 ACCORDINGLY, THERE BEING NO CHANGE IN THE F ACTUAL POSITION OF THE YEAR UNDER CONSIDERATION, THIS GROUND ALSO S TANDS ALLOWED. 7.3.4 GROUND NO. 4 IN ITA 1453/DEL/2017 IS IDEN TICAL TO GROUND NO. 4 RAISED IN ITA NO. 1452/DEL/2017 AND ON SIMILAR REASONING AS CONTAINED IN THE PRECEDING PARAGRAPHS, WE ALLOW GROUND NO. 4 IN THIS APPEAL ALSO. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 26 7.4.0 REGARDING GROUND NO. 5 IN ITA 1452/DEL/201 7, IT WAS SUBMITTED THAT THIS GROUNDS IS ALSO COVERED BY THE TRIBUNALS ORDER DATED 18.05.2015 IN ITA NO. 1124 & 1125/DEL/2 014 IN PARA 92 TO 106. THE RELEVANT PARAGRAPHS WERE BROUG HT TO OUR NOTICE WHICH READ AS UNDER:- 103. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE RECORD. WE FIND IT DIFFICULT TO ACCEPT THE ARGU MENTS OF THE LEARNED CIT-DR FOR TAXING THE SAID RECEIPTS. IN VIEW OF OUR OBSERVATIONS IN GROUND NO 2, 3 AND 4, WE HOL D THAT THE REVENUES EARNED FROM CUSTOMERS LOCATED IN SRI LANKA/ MIDDLE EAST ARE NOT TAXABLE UNDER THE TAX TREATY. EVEN OTHERWISE, WE ARE OF THE OPINION THAT THE SAID REVENUE IS NOT TAXABLE UNDER SEC. 9 OF THE ACT . WE STATE OUR REASONS BELOW: 104. IN THE PRESENT CASE THE REVENUE IS RECEIVED BY THE ASSESSEE FROM CUSTOMERS LOCATED OUTSIDE INDIA (I.E. SRI LANKA/ MIDDLE EAST). THEREFORE, THE TAXABILITY OF T HE TRANSACTION IS GOVERNED BY PROVISIONS OF SEC. 9(1)( VI)(C )/ 9(1)(VII)(C) OF THE ACT. THUS, TO TAX THE ROYALTY/ FTS INCOME EARNED FROM SUCH CUSTOMERS IN THE HANDS OF ASPECT U S, THE TRANSACTION SHOULD FALL WITHIN THE PROVISIONS O F SEC 9(1)(VI)(C )/9(1)(VII)(C) OF THE ACT. 105. SEC. 9(I)(VI)(C)/ 9(1)(VII)(C) OF THE ACT ARE DEEMING PROVISIONS AND HAVE TO BE CONSTRUED STRICTLY. A PLA IN READING OF BOTH THE SECTIONS SHOWS THAT ANY INCOME EARNED BY A NON-RESIDENT TAX PAYER (I.E. ASPECT IN THE PRE SENT CASE) BY WAY OF ROYALTY / FTS IS TAXABLE IN INDIA, IF SUCH ROYALTY /FTS IS PAYABLE BY A NON-RESIDENT (I.E. CUS TOMERS LOCATED IN SRI LANKA/ MIDDLE EAST) IN RESPECT OF AN Y RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED: (A) FOR THE PURPOSES OF BUSINESS, OR PROFESSION CARRIED ON BY SUCH PERSON (I.E. CUSTOMERS LOCATED IN SRI LANKA/ MIDDLE EAST) IN INDIA; OR ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 27 (B) FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. THUS TO TAX THE INCOME EARNED BY ASPECT US FROM CUS TOMERS LOCATED OUTSIDE INDIA UNDER SEC. 9(I)(VI)(-C)/ 9(1) (VII)(C ) OF THE ACT, THE REVENUE MUST PROVE THAT THE CUSTOMERS LOCA TED IN SRI LANKA / MIDDLE EAST CARRY ON BUSINESS IN INDIA AND THAT THEY HAVE USED ASPECTS US RIGHTS IN THE IPS/ SERVICES FO R THE PURPOSES OF SUCH BUSINESS IN INDIA; OR THAT THEY HA VE USED RIGHTS IN THE IPS/ SERVICES FOR THE PURPOSE OF MAKI NG OR EARNING INCOME FROM A SOURCE IN INDIA. IN THE PRESE NT CASE, THE REVENUE TAXED THE SAID INCOME ON THE SOLE REASO N THAT THESE SERVICES ARE PROVIDED BY INDIAN SUBSIDIARY OF THE ASSESSEE AND THE ASSESSEE IS EARNING HUGE INCOME FR OM THESE CUSTOMERS. THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE CUSTOMERS LOCATED IN SRI LANKA! MI DDLE EAST HAS USED THE RIGHTS IN THE IPS/ SERVICES FOR CARRYI NG ON BUSINESS IN INDIA OR FOR THE PURPOSE OF MAKING OR E ARNING INCOME FROM ANY SOURCE IN INDIA. UNDER THESE CIRCUM STANCES, WE AGREE WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE REVENUE IN QUESTION CANNOT BE BRO UGHT TO TAX UNDER THE ACT. 106. AS WE HAVE HELD THAT THE REVENUE IN QUESTION C ANNOT BE BROUGHT TO TAX AS 'ROYALTIES /F'I'S' UNDER THE ACT UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961 ITSELF, WE D O NOT FIND IT NECESSARY TO EXAMINE THE TAXABILITY OF THE SAME UND ER ARTICLE 12 OF THE TAX TREATY. 7.4.1 IT HAS ALSO BEEN SUBMITTED THAT IN THE DEPA RTMENTS APPEAL BEFORE THE HONBLE HIGH COURT, THE HONBLE H IGH COURT DECLINED TO FRAME A SPECIFIC QUESTION OF LAW ON THI S ISSUE AND THUS, THE ORDER OF THE TRIBUNAL HAD BECOME FINAL. IT HAS ALSO BEEN SUBMITTED THAT THE TRIBUNALS ORDER WAS FOLLOW ED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 28 ASSESSMENT YEAR 2011-12 IN ITA NO. 1842/DEL/2016 AL SO AND THE DEPARTMENTS APPEAL BEFORE THE HIGH COURT WAS DISMI SSED VIDE ORDER DATED 25.04.2017 IN ITA 7/2017. 7.4.2 THE LD. CIT DR COULD NOT CONTROVERT THE CON TENTIONS OF THE LD. AR. 7.4.3 ACCORDINGLY, THERE BEING NO CHANGE IN THE FACTUAL POSITION FOR THE YEAR UNDER CONSIDERATION, THE ADDITIONS PRO POSED BY THE ASSESSING OFFICER ON THIS GROUND ARE SET ASIDE. 7.4.4 GROUND NO. 5 IN ITA 1453/DEL/2017 IS ALSO IDENTICAL TO GROUND NO. 5 IN ITA NO. 1452/DEL/2017 AND ON SIMILA R REASONING AS CONTAINED IN THE PRECEDING PARAGRAPHS, WE ALLOW GROUND NO. 5 IN THIS APPEAL ALSO. 7.5.0 WITH REGARD TO GROUND NO. 7 IN ITA 1452/DE L/2017, IT HAS BEEN SUBMITTED THAT THIS ISSUE HAS BEEN SET ASIDE B Y THE ITAT TO THE FILE OF THE ASSESSING OFFICER IN ITA NO. 1124 A ND 1125 VIDE ORDER DATED 18.05.2015 AND A SIMILAR SET ASIDE WAS DIRECTED IN ASSESSMENT YEAR 2011-12 IN ITA 1842/DEL/2016. 7.5.1 THE LD. CIT DR HAD NO OBJECTION TO THE IS SUE BEING SET ASIDE TO THE FILE OF THE AO/TPO. 7.5.2 ACCORDINGLY, AS THERE IS NO CHANGE IN THE FACTUAL POSITION FOR THE YEAR UNDER CONSIDERATION, WE DIRECT THE ASS ESSING OFFICER ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 29 TO REFER THE MATTER TO THE TPO FOR DETERMINING THE ALP AND THUS DECIDE ON THE ISSUE OF ATTRIBUTION OF PROFITS FOR F RESH ADJUDICATION IN ACCORDANCE WITH LAW. THUS, THIS GROUND STANDS A LLOWED FOR STATISTICAL PURPOSES. 7.5.3 GROUND NO. 7 IN ITA 1453/DEL/2017 IS ALSO IDENTICAL TO GROUND NO. 7 RAISED IN ITA NO. 1452/DEL/2017 AND ON THE SAME REASONING, WE SET ASIDE THE ISSUE ON THE ATTRIBUTIO N OF PROFITS IN ACCORDANCE WITH LAW. THUS, THIS GROUND IS ALSO ALL OWED FOR STATISTICAL PURPOSES. 7.6.0 REGARDING GROUND NOS. 6 AND 8 IN ITA 1452/D EL/2017, IT HAS BEEN SUBMITTED THAT THIS GROUND HAS BEEN DEALT EXTENSIVELY BY ITAT IN ITS ORDER DATED 18.05.2015 IN ITA NO. 11 24 & 1125/DEL/2015 IN PARA 126 AND 128. THE RELEVANT PA RAGRAPHS ARE REPRODUCED AS UNDER:- 126. IN VIEW OF THE ABOVE, WE AGREE WITH THE LEARN ED COUNSEL OF THE ASSESSEE THAT WHERE AN ASSOCIATED ENTERPRISE (THAT ALSO CONSTITUTES A PE) IS REMUNER ATED ON ARMS LENGTH BASIS TAKING INTO ACCOUNT ALL THE RISK TAKING FUNCTIONS OF THE MULTINATIONAL ENTERPRISE, N OTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO PE. 127. 128. FOR THE OTHER A.YS UNDER APPEAL, WE DIRECT THE AO TO REFER THE MATTER TO THE TPO WHEREVER THERE IS NO EX ISTING REFERENCE EITHER IN THE CASE OF ASPECT US OR ASPECT INDIA. THE TPO SHALL DETERMINE ALP AND ATTRIBUTE THE PROFI TS ACCORDINGLY. IN THIS REGARD, WE PLACE RELIANCE IN T HE CASE OF RANBAXY LABORATORIES LTD. VS. CIT (345 ITR 193, DEL ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 30 HC) WHEREIN THE VALIDITY OF THE INSTRUCTION NO.3 DT .25-5- 2003 ISSUED BY THE CBDT U/S 119 OF THE INCOME TAX A CT WAS UPHELD AND THE REFERENCE TO TPO FOR DETERMINATI ON OF ALP WAS CONSIDERED MANDATORY. 7.6.1 IT HAS ALSO BEEN SUBMITTED THAT THIS ORD ER WAS CHALLENGED BY THE DEPARTMENT BEFORE THE HONBLE DEL HI HIGH COURT AND THE HONBLE DELHI HIGH COURT DECLINED TO FRAME A SPECIFIC QUESTION OF LAW ON THE ISSUE AND FURTHER T HIS ORDER WAS ALSO FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2011-12 IN ITA NO. 1842/DEL/2016 AN D THE DEPARTMENTS APPEAL AGAINST THE SAID ORDER BEFORE T HE HONBLE DELHI HIGH COURT WAS DISMISSED VIDE ORDER DATED 25. 04.2017 IN ITA 7/2017. 7.6.2 THE LD. CIT DR COULD NOT POINT OUT ANY F ACTUAL OR LEGAL INFIRMITY IN THE CONTENTIONS OF THE LD. AR. 7.6.3 ACCORDINGLY, THERE BEING NO CHANGE IN FACT UAL POSITION IN THE YEAR UNDER CONSIDERATION, THESE GROUNDS ALSO ST AND ALLOWED. 7.6.4 GROUND NOS. 6 & 8 IN ITA 1453/DEL/2017 AR E ALSO IDENTICAL TO GROUND NOS. 6 & 8 IN ITA NO. 1452/DEL/ 2017 AND ON SIMILAR REASONING, THERE BEING NO CHANGE IN THE FAC TUAL POSITION FOR THE YEAR UNDER CONSIDERATION, WE ALLOW THIS GRO UND IN THIS YEAR ALSO. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 31 7.7.0 REGARDING GROUND NO. 9 IN ITA 1452/DEL/2017 , IT HAS BEEN SUBMITTED THAT THIS ISSUE HAS BEEN DEALT BY TH E TRIBUNAL IN ITS ORDER DATED 18.5.2015 IN ITA 1124 & 1125/DEL/20 14 AND THE RELEVANT OBSERVATIONS ARE AS UNDER:- SIMILAR ISSUES HAVE BEEN DEALT WITH BY US EARLIER IN THIS ORDER WHILE DEALING WITH ATTRIBUTION OF PROFITS TO THE PE. AS THE CRITERIA FOR ADJUDICATION OF BOTH THE ISSUES IS SIMILAR, CONSISTENT WITH THE VIEW TAKEN BY US, WE D IRECT THE A.O. TO ACCEPT THE TPO ANALYSIS OF ASPECTS INDI A WHEREVER THE SAME IS AVAILABLE. 7.7.1 IT HAS ALSO BEEN SUBMITTED THAT THE COORDINA TE BENCH OF THE TRIBUNAL ALSO FOLLOWED THIS DECISION IN ASSE SSMENT YEAR 2011-12 IN ASSESSEES OWN CASE IN ITA 1842/DEL/2016 VIDE ORDER DATED 27.06.2016. 7.7.2 THE LD. CIT DR COULD NOT DISPUTE THE CO NTENTIONS OF THE LD. AR. 7.7.3 SINCE THERE IS NO CHANGE IN THE FACTUAL PO SITION FOR THE YEAR UNDER CONSIDERATION, THIS GROUND ALSO STANDS A LLOWED. 7.7.4 GROUND NO. 9 IN ITA 1453/DEL/2017 IS ALSO I DENTICAL TO GROUND NO. 9 RAISED IN ITA NO. 1452/DEL/2017 AND ON SIMILAR REASONING, THERE BEING NO CHANGE IN THE FACTUAL POS ITION FOR THE YEAR UNDER CONSIDERATION, WE ALLOW THIS GROUND IN T HIS YEAR ALSO. ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 32 7.8.0 REGARDING GROUND NO. 10 IN ITA 1452/DEL/201 7, IT HAS BEEN CLAIMED THAT THE ENTIRE TDS CLAIMED BY THE ASS ESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER. ON THE BASIS OF EVIDENCE PLACED ON RECORD, IT IS APPARENT TO US THAT THE CLA IM OF THE ASSESSEE REGARDING GRANT OF TDS IS BONA FIDE AND WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEE S CLAIM OF TDS AFTER PROPER VERIFICATION. THIS GROUND STANDS ALLO WED FOR STATISTICAL PURPOSES. 7.8.1 SIMILARLY GROUND NO. 10 IN ITA 1453/DEL/20 17 PERTAINS TO THE ASSESSEES CLAIM THAT THE ENTIRE TDS CREDIT CLAIMED BY IT WAS NOT ALLOWED BY THE ASSESSING OFFICER. ON THE BA SIS OF EVIDENCE PLACED ON RECORD, IT IS APPARENT THAT THE CLAIM OF THE ASSESSEE REGARDING THE CREDIT OF TDS IS BONA FIDE . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME A FTER PROPER VERIFICATION. THUS, THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES 7.9.0 WITH RESPECT TO GROUND NO. 11 IN ITA 145 2/DEL/2017, IT HAS BEEN SUBMITTED THAT THIS GROUND HAS BEEN DEALT EXTENSIVELY BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1 124 & 1125/DEL/2014 VIDE ORDER DATED 18.5.2015 AND THE RE LEVANT PARAGRAPHS 148 AND 149 ARE REPRODUCED HERE IN UNDER :- ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 33 148. THE UNDISPUTED FACT IN THE PRESENT CASE IS TH AT TAX ON THE ENTIRE INCOME RECEIVED BY THE ASSESSEE WAS REQUIRED TO BE DEDUCTED AT APPROPRIATE RATES BY THE RESPECTIVE PAYERS UNDER SECTION 195(2). HAD THE PAY ER MADE THE DEDUCTION OF TAX AT THE APPROPRIATE RATE, THE NET TAX PAYABLE BY THE ASSESSEE WOULD HAVE BEEN NIL. 149. IN THE CASE OF ALCATEL, ALCATEL HAS NOT OFFERE D THE INCOME TO TAX WHILE FILING THE TAX RETURN AND ALSO THE DEDUCTEES HAD NOT WITHHELD TAX ON THE SAME. HOWEVER , IN THE PRESENT CASE, TAX WAS DEDUCTED AT SOURCE BY THE CUSTOMERS AND PAYERS IN INDIA ON PAYMENTS MADE TO T HE ASSESSEE COMPANY AND THE ASSESSEE COMPANY IS CLAIMI NG REFUND OF THIS TAX DEDUCTED. THE INTEREST OBLIGATIO N HAS ARISEN ON ACCOUNT OF THE AO HOLDING ACC AS PE OF ASSESEEE IN INDIA WHICH RESULTED IN HIGHER ASSESSED INCOME. FURTHER, THE REVENUE HAS NOT BROUGHT ANYTHI NG ON RECORD TO PROVE THAT THE ASSESSEE HAS LED THE IN DIAN PAYERS TO BELIEVE THAT TAX WAS DEDUCTIBLE AT LOWER RATES. UNDER THESE CIRCUMSTANCES, WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE. 7.9.1 IT HAS BEEN FURTHER SUBMITTED THAT THIS VIEW OF THE TRIBUNAL WAS AFFIRMED BY THE HONBLE DELHI HIGH COU RT AND WAS FURTHER FOLLOWED BY THE ITAT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12 IN ITA 1482/DEL/2016 VIDE O RDER DATED 27.06.2016. IT WAS ALSO SUBMITTED THAT THE DEPARTM ENTAL APPEAL AGAINST THIS ORDER WAS DISMISSED BY THE HONBLE DEL HI HIGH COURT VIDE ORDER DATED 25.04.2017 IN ITA 7/2017. 7.9.2 THE LD. CIT DR COULD NOT POINT OUT ANY FAC TUAL INACCURACY IN THE CONTENTIONS OF THE LD. AR. 7.9.3 SINCE THERE IS NO CHANGE IN THE FACTUAL POS ITION FOR THE YEAR UNDER CONSIDERATION AND IN VIEW OF THE JUDGMEN T OF HONBLE ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 34 JURISDICTIONAL HIGH COURT AFFIRMING THE ORDER OF TH E ITAT, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 7.10.0 GROUND NO. 12 IN ITA 1452/DEL/2017 CHALLEN GES THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). THIS GROUND BEING PREMATURE IS DISMISSED. 7.10.1 SIMILARLY, GROUND NO. 11 IN 1453/DEL/2017CHA LLENGES THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. SINCE THIS GROUND IS PREMATURE, THE SAME IS ALSO DI SMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 27 TH SEPTEMBER, 2018 GS ITA NO. 1452 & 1453/D/2017 ASSESSMENT YEARS 2012-13, 2013-14 35 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER