Ericsson AB, Sweden, Sweden V. DDIT Circle- 1(2), International Taxation, New Delhi

ITA 1735/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2723 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 12-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANGADHAR
• Keywords: Business income; Depreciation; Double taxation relief; Principle of natural justice; Period of limitation; Permanent establishment; TDS; Set aside
• Section: 234B; 195; 13; 22; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1700/DEL/2018 [ASSESSMENT YEAR: 1999-2000] ITA NO. 1701/DEL/2018 [ASSESSMENT YEAR: 2000-01] ITA NO. 1702/DEL/2018 [ASSESSMENT YEAR: 2001-02] ITA NO. 1703/DEL/2018 [ASSESSMENT YEAR: 2002-03] ITA NO. 1704/DEL/2018 [ASSESSMENT YEAR: 2003-04] ITA NO. 1705/DEL/2018 [ASSESSMENT YEAR: 2004-05] THE A.C.I.T. VS. ERICSSON, AB SWEDEN CIRCLE 1(2)(2) S 16480, STOCKHOLM, INTERNATIONAL TAXATION SWEDEN NEW DELHI PAN : AAACE 9466 B ITA NO. 1732/DEL/2018 [ASSESSMENT YEAR: 1999-2000] ITA NO. 1733/DEL/2018 [ASSESSMENT YEAR: 2000-01] ITA NO. 1734/DEL/2018 [ASSESSMENT YEAR: 2001-02] 2 ITA NO. 1735/DEL/2018 [ASSESSMENT YEAR: 2002-03] ITA NO. 1736/DEL/2018 [ASSESSMENT YEAR: 2003-04] ITA NO. 1737/DEL/2018 [ASSESSMENT YEAR: 2004-05] ERICSSON, AB SWEDEN VS. THE ACI T/DDIT C/O PRICE WATER HOUSE COOPERS PVT LTD CIRCLE 1(2)(2), TOWER C, 18 TH FLOOR, NEW DELHI DLF CYBER CITY, GURGAON PAN : AAACE 9466 B [APPELLANT] [RESPONDENT] DATE OF HEARING : 14.10.2021 DATE OF PRONOUNCEMENT : 27.10.2021 ASSESSEE BY : SHRI PERCY PARDIWALLA, SR. ADV SHRI VISHAL KALRA, ADV REVENUE BY : SHRI GANGADHAR PANDA, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: THE ABOVE CAPTIONED APPEALS BY THE ASSESSEE AND REV ENUE ARE PREFERRED AGAINST THE VERY SAME ORDER OF THE LD. CI T(A) - 42, NEW DELHI DATED 29.12.2017. SINCE COMMON ISSUES ARE INVOLVED IN ALL THE ABOVE 3 APPEALS PERTAINING TO SAME ASSESSEE AND WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE ASSESSEE IS IN APPEAL AGAINST THAT PART OF T HE ORDER OF THE LD. CIT(A) WHICH HAS BEEN DECIDED AGAINST IT AND THE RE VENUE IS IN APPEAL IN RESPECT OF THE OTHER PART OF THE ORDER OF THE LD . CIT(A) WHICH HAS BEEN DECIDED AGAINST IT. 3. THE BRIEF HISTORY OF THE CAPTIONED APPEALS ARE T HAT IN THE FIRST ROUND OF LITIGATION, VIDE ORDER DATED 12.03.2004, T HE ASSESSING OFFICER IN ASSESSMENT YEAR 1999-2000, HAS MADE THE ADDITION S AS UNDER: S. NO. INCOME HEAD GOSS INCOME AMOUNT (RS) NET TAXABLE AMOUNT (RS) TAX RATE TAX AMOUNT (RS) 1. SALE OF HARDWARE 1,003,309,774 7,22,88,469* 48% 3,46,98,465 2. SUPPLY OF SOFTWARE 253,263,779 253,263,779 10% 25,326,378 TOTAL 1,256,573,553 282,181,224 6,00,24,843 4. WHILE MAKING THE ADDITIONS, THE RELEVANT OBSERVA TIONS OF THE ASSESSING OFFICER READ AS UNDER: 4 A S IN PRECEDING YEARS (HE CLAIM OF THE ASSESSEE IS TH AT THEY HAD SUPPLIED THE EQUIPMENT AT THE PORT IN SWEDEN AND TH EIR INCOME IS NOT LIABLE TO TAX IN INDIA AS PER PROVISION OF THE INDIAN INCOME TAX ACT, 1961 (THE ACT) AND THE INDO SWEDISH DOUBLE TAX ATION AVOIDANCE AGREEMENT (DTAA) VIDE NOTIFICATION NO. GS R 705(E). .THIS ISSUE HAS BEEN EXAMINED AT LENGTH IN THE ORDE RS PASSED DURING EARLIER YEARS FOR ASSESSMENT YEAR 1997-98, 1998-99 AND 2000-01. IN THESE ORDERS MY PREDECESSORS HAD HELD THAT THE A SSESSEE COMPANY WAS LIABLE TO TAX IN INDIA BOTH UNDER THE I NCOME TAX ACT, 1961 AND THE DTAA. IT WAS HELD THAT THE ASSESSEE HA D FIXED PLACE OF BUSINESS IN INDIA AS WELL AS IT HAD DEPENDENT AG ENTS IN INDIA BY VIRTUE OF WHICH PERMANENT ESTABLISHMENT OF THE ASSE SSEE WAS CONSTITUTED IN INDIA WITHIN THE MEANING OF ARTICLE 5 OF THE DTAA. THE FACTS AND CIRCUMSTANCES OF THE CASE REMAIN THE SAME FOR THIS YEAR AS IN PRECEDING YEARS. THE NATURE OF ACTIVITIE S CARRIED OUT ARID THE CONTRACTS UNDER WHICH SUCH ACTIVITIES HAVE BEEN EARNED OUT REMAIN THE SAME. HENCE, THE SUPPLY OF TELECOM HARDW ARE IS THEREFORE HELD TO BE BUSINESS PROFITS LIABLE TO TAX IN INDIA UNDER THIS HEAD. THE PAYMENTS RECEIVED BY THE ASSESSEE FO R THE SUPPLY OF SOFTWARE IS HELD TO BE ROYALTY WITHIN THE MEANING OF THE DTAA AND 5 IS TO BE TAXED AS SUCH. THE POSITION REGARDING ROYA LTY PAYMENTS HAS ALSO BEEN UPHELD BY THE HONBLE CIT(APPEALS). 5. THE ADDITIONS WERE CHALLENGED BEFORE THE LD. CIT (A) AND THE LD. CIT(A) CONFIRMED THE ADDITIONS PARTLY AGAINST WHICH THE ASSESSEE PREFERRED APPEAL BEFORE THIS TRIBUNAL AND FOR THE A DDITIONS DELETED BY THE LD. CIT(A), THE REVENUE PREFERRED APPEAL BEFORE THIS TRIBUNAL. 6. BEFORE THE TRIBUNAL, THE ASSESSEE STRONGLY CONTE NDED THAT THE ISSUES HAVE BEEN SQUARELY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE SPECIAL BENCH OF THIS TRIBUNAL I N A.YS 1997-98 AND 1998-99 WHICH ORDER HAS BEEN UPHELD BY THE HON'BLE HIGH COURT OF DELHI IN ITA NO. 504, 507, 508, 511 OF 2007 BY JUDG EMENT DATED 23.12.20011. THE TRIBUNAL WAS CONVINCED WITH THE C ONTENTIONS OF THE ASSESSEE AND DECIDED THE APPEAL IN FAVOUR OF THE AS SESSEE AND AGAINST THE REVENUE FOLLOWING THE ORDERS OF THE SPECIAL BEN CH IN A.YS 1997-98 AND 1998-99. 7. THE REVENUE APPEALED BEFORE THE HON'BLE HIGH COU RT OF DELHI AND THE HON'BLE HIGH COURT WAS PLEASED TO SET ASIDE THE ORDER OF THE TRIBUNAL AND THE LD. CIT(A) AND REMITTED THE MATTER BACK TO THE FILE OF 6 THE LD. CIT(A). THE FINDINGS OF THE HON'BLE HIGH C OURT OF DELHI READ AS UNDER: 7. THIS COURT HAS CONSIDERED THE SUBMISSIONS OF TH E PARTIES. PARA 3.2 AND 3.3 OF THE ORDER OF CIT (APPEALS) POINTS TO THE INFERENCES DRAWN BY THE AUTHORITY. GIVEN THAT THE CIT (APPEALS ) IS VESTED WITH ADJUDICATORY POWERS INCLUDING POWER TO APPRECI ATE THE FACTS SUBJECT TO THE CONDITION THAT REASONABLE OPPORTUNIT Y IS TO BE AFFORDED TO THE ASSESSEE, THE ITAT WAS CORRECT IN H OLDING THAT SUCH FACT DETERMINATION TO THE DETRIMENT OF THE ASS ESSEE WAS UNWARRANTED IN THE CIRCUMSTANCES OF THE CASE. HOWEV ER, THE PROBLEM IS THAT THE ITAT DID NOT STOP AND REMIT THE MATTER TO PROCEED ON A FRESH DETERMINATION OF THE SAME MATERI AL. ITS DISCUSSION TO BE FOUND IN PARAS 24 AND 27 OF THE IMPUGNED ORDER, WAS RENDERED BASED ON THE FINDINGS WITH RESPECT TO THE PREVIOUS YEARS (1997-98) AND THE FAILURE TO MAKE OUT A NEW C ASE. WE ARE OF THE OPINION THAT HAVING PRIMARILY RECORDED THAT THE CIT (APPEALS)S ORDER WAS BAD FOR THE REASON THAT HE DID NOT FOLLOW THE PROCEDURE PRESCRIBED BY THE LAW, THE ITAT OUGHT NOT TO HAVE F OLLOWED IN THE SAME MANNER, IN APPRECIATING THE FACTS IN THE FIRST INSTANCE AS IT DID. WE ARE CONSCIOUS THAT THIS COURT IN ITS RULING IN ERICSSON (SUPRA) HAD RENDERED FINDINGS ON THE QUESTION OF TA XABILITY OF THE TRANSACTION OF SUPPLY AND CONCLUDED THAT THE SUPPLY CONTRACTS DID NOT LEAD TO ANY INFERENCES THAT INCOME HAD ARISEN O R ACCRUED IN INDIA. THE FACTS FOUND BY THIS COURT ALSO POINTED T HAT THERE WAS PE. HOWEVER, THAT DECISION HAS TO BE SEEN IN THE LI GHT OF THE FACTS AVAILABLE TO COURT AT THAT TIME. THE QUESTION AS TO WHAT WAS THE 7 MATERIAL COLLECTED DURING THE SURVEY AND WHAT ARE T HE INFERENCES DRAWN AND WHETHER THE QUESTION OF PE OR ANY OTHER I SSUE WOULD ARISE, IS SOMETHING THIS COURT OUGHT NOT TO SURMISE . 8. IN THESE CIRCUMSTANCES, THIS COURT DEEMS IT MOST APPROPRIATE TO SET ASIDE THE ORDER OF THE ITAT AND CIT (APPEALS) A ND REMIT THE MATTER TO THE CIT (APPEALS) WHO SHALL GIVE REASONAB LE OPPORTUNITY TO THE ASSESSEE, IN THE LIGHT OF THE MATERIALS COLL ECTED DURING THE SURVEY CONDUCTED ON 22.11.2007 FOR THE ASSESSMENT Y EARS IN QUESTION I.E. 1999-2000 TO 2004-05. IT IS OPEN TO T HE ASSESSEE TO TAKE ALL CONTENTIONS INCLUDING THE SUBMISSIONS TO B E MADE IN THE LIGHT OF THE PREVIOUS JUDGMENT OF THIS COURT. RIGHT S AND CONTENTIONS OF THE PARTIES ARE RESERVED. 9. THE IMPUGNED ORDER IS SET ASIDE. APPEALS ARE ALL OWED IN ABOVE TERMS. 8. FOLLOWING THE DIRECTIONS OF THE HON'BLE HIGH COU RT [SUPRA], THE LD. CIT(A) INITIATED FRESH APPELLATE PROCEEDINGS AND ON CE AGAIN CONFIRMED THE ASSESSMENT ORDER. THE IMPUGNED ORDER OF THE LD . CIT(A) IS UNDER APPEAL BEFORE US. 8 9. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTANCE O F THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGH T ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 18(6) OF IT AT RULES. 10. THE APPELLANT COMPANY [EAB] IS A COMPANY INCORP ORATED IN SWEDEN AND IS A TAX RESIDENT OF SWEDEN. IT IS A WH OLLY OWNED SUBSIDIARY OF TELEFONAKTIEBOLAGET LM ERICCSON, SWED EN. THE MAIN BUSINESS OF THE ASSESSEE IS SUPPLY OF GSM MOBILE TE LECOMMUNICATION SYSTEM COMPRISING OF HARDWARE AND SOFTWARE TO VARIO US CELLULAR COMPANIES OPERATING IN INDIA. 11. ERICCSON INDIA PVT LTD [EIL] IS ALSO A WHOLLY O WNED SUBSIDIARY OF LME SWEDEN. 12. THE COMMON GRIEVANCE IN THE CAPTIONED APPEALS R ELATES TO WHETHER THE APPELLANT COMPANY HAS BUSINESS CONNECTI ON AND EXPOSURE TO PERMANENT ESTABLISHMENT [PE]. 9 13. THE APPELLANTS CLAIM IS THAT IT HAD SUPPLIED T HE EQUIPMENT AT PORT IN SWEDEN AND THEIR INCOME IS NOT LIABLE TO TA X IN INDIA AS PER PROVISIONS OF THE ACT AND ALSO THE INDO-SWEDISH DTA A. FURTHER CONTENTION OF THE ASSESSEE IS THAT THE RECEIPTS ARE NOT IN THE NATURE OF ROYALTY AS PER THE INDIA SWEDEN DTAA. 14. IN SO FAR AS THE SUPPLY OF HARDWARE IS CONCERNE D, THE ASSESSING OFFICER/LD. CIT(A) HELD THAT THE ASSESSEE HAD FIXED PLACE OF BUSINESS IN INDIA AS WELL AS IT IS DEPENDENT AGENTS IN INDIA BY VIRTUE OF WHICH PE OF THE ASSESSEE WAS CONSTITUTED IN INDIA WITHIN THE ME ANING OF ARTICLE 5 OF THE DTAA. 15. THE VIEWS TAKEN BY THE ASSESSING OFFICER/ LD. C IT(A) WERE DULY CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS 1997-98 AND 1998-99 WHICH ORDER OF THE TRI BUNAL WAS UPHELD BY THE HON'BLE HIGH COURT OF DELHI [SUPRA]. 16. THE LD. CIT(A) IS OF THE FIRM BELIEF THAT IN LI GHT OF THE FACTS AND DOCUMENTS AND EVIDENCES UNEARTHED DURING THE COURSE OF SURVEY OPERATION CONDUCTED ON 22.11.2007, THE FACTS OF THE A.Y UNDER 10 CONSIDERATION ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF A.YS 1997-98 AND 1998-99 CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL. 17. REFERRING TO THE JUDGEMENT OF THE HON'BLE HIGH COURT OF DELHI BY WHICH THE HON'BLE HIGH COURT HAS UPHELD THE ORDER O F THE SPECIAL BENCH OF THE TRIBUNAL FOR A.YS 1997-98 AND 1998-99, THE L D. CIT(A) WAS OF THE OPINION THAT THE HON'BLE HIGH COURT HAS CATEGORICAL LY STATED THAT THE POSITION MIGHT HAVE BEEN DIFFERENT IF THE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON THE FAILURE OF ACCEPTANCE TEST CAR RIED OUT IN INDIA. 18. TAKING A LEAF OUT OF THE AFORESAID OBSERVATIONS OF THE HON'BLE HIGH COURT OF DELHI, THE LD. CIT(A) TOOK THE FIRST STEP TO DISTINGUISH THE FACTS OF THE YEAR UNDER CONSIDERATION WITH THE FAC TS OF A.YS 1997-98 AND 1998-99. THE LD. CIT(A) THUS OBSERVED AS UNDER : 5.23 BEFORE TAKING UP THE FACTS EMERGING OUT OF TH E SURVEY MATERIAL, IT IS IMPORTANT TO MENTION THAT WHILE DEC IDING THE APPEAL IN THE CASE OF THE ASSESSE FOR AY 1997-98 AND 1998- 99, THE CONTRACT SIGNED WITH RPG WAS TAKEN AS THE SAMPLE AG REEMENT TO DECIDE THE ISSUE BY AUTHORITIES. THE RIGHT TO REJEC T THE EQUIPMENT ON THE FAILURE OF SUBSTANCE TEST WAS NOT THERE IN T HE RPG AGREEMENT. HOWEVER, PERUSAL OF BHARTI CELLULAR CONT RACT DATED 22.12.2003 SHOWS THAT THERE ARE CLAUSES RELATED TO REJECTION OF THE GOODS. THE RELEVANT CLAUSES IN THIS REGARD ARE DISCUSSED BELOW. 11 5.24 PARA NO. 19.2 OF THE CONTRACT PROVIDES FOR REJ ECTION OF GOODS AND OBLIGATE SUPPLIER TO REPLACE THE REJECTED GOODS . THE PARA 19.2 READS AS UNDER: 'IF ANY INSPECTED OR TESTED GOODS FAIL TO CONFORM T O SPECIFICATIONS AS SPECIFIES IN ANNEXURE 3 AND ANNEX URE 4, DURING THE ACCEPTANCE TEST, BUYER OR BUYER AFFILIAT E MAY REJECT SUCH GOODS AND THE SUPPLIER SHALL EITHER REPLACE TH E REJECTED GOODS OR MAKE ALL ALTERATIONS NECESSARY TO MEET SPECIFICATION REQUIREMENTS AT NO CHARGE TO BUYER OR BUYER NOTIFICATION FROM BUYER OR BUYER AFFILIATE.' 5.25 FURTHER, PARA NO. 19.11 OF THE BHARTI CONTRACT DEALS WITH REPLACEMENT OF FAULTY EQUIPMENT AND READS AS UNDER: 'IF SYSTEM PART OF SYSTEM, BEFORE ACCEPTANCE AS PER ARTICLE 19, FAILS TO MEET THE SPECIFICATIONS PER AN NEX 3, IT SHALL BE REPLACED BY SUPPLIER ON PRIORITY AT NO COS T TO BUYER OR BUYER AFFILIATE. REPLACEMENT OF FAULTY EQUIPMENT WILL BE MADE WITHIN 2-4 WEEKS, HOWEVER STANDBY WILL BE MADE AVAILABLE USING SPARES IMMEDIATELY USING SPATES IMMEDIATELY FOR EMERGENCY SCENARIO.' 5.26 FURTHERMORE, PARA NO. 23.L(IV) OF BHARTI CONTRAC T PROVIDES THAT IF SUCH REMEDIES ARE NOT REASONABLY OR ECONOMI CALLY FEASIBLE, SUPPLIER MAY REQUEST BUYER AND BUYER AFFILIATE TO R ETURN THE SYSTEM AND REFUND TO BUYER OR BUYER AFFILIATE, THE PURCHASE PRICE 12 LESS A REASONABLE AMOUNT FOR DEPRECIATION AS REFLEC TED ON THE BOOKS OF BUYER OR BUYER AFFILIATE, PROVIDED ALWAYS. 5.27 THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, TH ERE IS A DIFFERENCE IN THE CONTRACT WITH BHARTI WITH REFEREN CE TO THE 'REJECTION CLAUSE'. THEREFORE, IT IS AN IMPORTANT F INDING THAT THE FACTS OF THE CASE FOR THE YEARS IN QUESTION ARE DIS TINGUISHABLE FROM THE AY 1997-98 AND 1998-99 IN THE CASE OF THE ASSES SEE. 19. THE ABOVE OBSERVATIONS OF THE LD. CIT(A) ARE FA CTUALLY INCORRECT AND HE HAS MISDIRECTED HIMSELF BY CONSIDERING ERRON EOUS FACTS. FIRSTLY, THE CONTRACT WHICH WAS CONSIDERED WAS NOT OF RPG BU T WAS OF JT MOBILE AND THIS CONTRACTS IS PLACED IN VOLUME III O F THE PAPER BOOK AT PAGES 854 TO 875. AT CLAUSE (18), CONTENTS OF ACCE PTANCE READ AS UNDER: 18. ACCEPTANCE TEST SHALL BE CARRIED OUT IN RESPEC T OF THE SYSTEM OR PARTS THEREOF BY THE INSTALLATION CONTRACTOR WHICH SHALL BE BINDING ON THE CONTRACTOR HEREIN. ACCEPTANCE SHALL BE PERFORMED IN ACCORDANCE WITH TH E TERMS AND CONDITIONS STIPULATED IN THE INSTALLATION CONTRACT. 20. CLAUSE (21) READS AS UNDER: 13 21.1 THE SYSTEM IF THE SYSTEM UPON INSTALLATION BY THE INSTALLATION CONTRACTOR, WOULD NOT CONFORM TO AND FUNCTION AND OPERATE IN AC CORDANCE WITH THE CRITERIA AND SPECIFICATIONS SET FORTH IN THE SP ECIFICATION (ANNEXES 1, 2 AND 3), 'CONTRACTOR WARRANTS TO REPAI R OR REPLACE THE SYSTEM OR PARTS THEREOF, IN ACCORDANCE WITH WHAT IS STATED BELOW, SO THAT IT WILL CONFORM TO AND FUNCTION AND OPERATE IN ACCORDANCE WITH THE CRITERIA AND SPECIFICATIONS SET FORTH IN T HE SPECIFICATION. HARDWARE, SPARE PARTS AND TEST EQUIPMENT CONTRACTOR SHALL, FOR A PERIOD OF TWELVE (12) MONTH S FROM THE RESPECTIVE DATE OF ACCEPTANCE OR THE DEEMED ACCEPTA NCE UNDER ARTICLE 18, ACCEPTANCE, WHICHEVER IS EARLIER AT HIS OPTION WITHOUT UNDUE DELAY REPAIR OR REPLACE WITHOUT CHARGE TO JT MOBILES ANY PART OF THE HARDWARE OR SPARE PARTS OR TEST EQUIPME NT FOUND TO BE FAULTY BY REASON OF DEFECTIVE MATERIAL, DESIGN O R WORKMANSHIP. ANY REPAIRED OR REPLACED HARDWARE, SPARE PARTS OR T EST EQUIPMENT WILL BE WARRANTED FOR THE REMAINDER OF THE ORIGINAL WARRANTY PERIOD, HOWEVER NOT LESS THAN THREE (3) MONTHS. CONSUMABLE PARTS, SUCH AS LAMPS, BATTERIES, FUSES E TC., ARE EXCLUDED FROM SAID WARRANTY. 21. CLAUSE 23 READS AS UNDER: INFRINGEMENTS 23.1 CONTRACTOR SHALL INDEMNIFY AND KEEP INDEMNI FIED JT 14 MOBILES AGAINST ALL ACTIONS OR CLAIMS FOR INFRINGEM ENT OF PATENTS, COPYRIGHTS, REGISTERED DESIGNS OR ANY OTHER INTELLE CTUAL PROPERTY RIGHT BY REASON OF THE PROPER USE OF THE SYSTEM IN INDIA WHERE THE SYSTEM IS INSTALLED, AND CONTRACTOR SHALL PROMPTLY, AT HIS OPTION AND OWN EXPENSE, EITHER I. PROCURE FOR JT MOBILES AND ITS CUSTOMER THE RIGHTS FOR CONTINUED USE OF THE SYSTEM IN ITS PRESENT FORM, OR II. REPLACE OR MODIFY THE SYSTEM SO THAT IT NO LONGER I NFRINGES ANY SUCH RIGHTS, OR III. SETTLE OR DEFEND ANY FURTHER CLAIM, SUIT OR PROCEED ING AGAINST JT MOBILES ARISING OUT OF SUCH CONTINUED US E, PROVIDED ALWAYS A) THAT JT MOBILES WITHOUT DELAY INFORMS CONTRACTOR IN WRITING OF ANY CLAIM MADE BY REASON OF ALLEGED INFRINGEMENT AS AFORESAID AND REFRAINS FROM TAKING ACTION ON ACC OUNT OF SUCH CLAIMS WITHOUT PREVIOUS APPROVAL OF CONTRACTOR ; B) THAT JT MOBILES WITHOUT DELAY INFORMS CONTRACTOR IN WRITING IF LEGAL ACTION IS TAKEN ON ACCOUNT OF SUCH CLAIM AND THAT CONTRACTOR SHALL HAVE FULL AUTHORITY TO DEFEND OR SETTLE THE SAME THROUGH ITS COUNSEL; C) THAT CONTRACTOR IS INFORMED OF ALL CIRCUMSTANCES WH ICH MAY BE OF RELEVANCE IN THE LEGAL ACTION TAKEN AND JT MO BILES REFRAINS FROM ALL STEPS IN ANY LEGAL ACTION WHICH M AY 15 PREJUDICE CONTRACTOR; D) THAT IN CASE CONTRACTOR FAILS TO ACT AGAINST SUCH C LAIMS OR ACTIONS JT MOBILES SHALL HAVE THE RIGHT TO TAKE APPROPRIATE LEGAL ACTION AND SHALL BE REPAID ANY EX PENSES IN SO DOING; AND E) THAT THE INFRINGEMENT OR ALLEGED INFRINGEMENT IS NO T ARISING OUT OF THE USE OF THE SYSTEM IN COMBINATION OR CONJ UNCTION WITH ANY OTHER ITEM OR THE USE THEREOF NOT SUPPLIED OR MANUFACTURED BY CONTRACTOR. 23.2 THIS ARTICLE 23, INFRINGEMENTS, PROVIDES C ONTRACTORS SOLE LIABILITY AND JT MOBILES' SOLE REMEDY FOR CLAIMS OF INFRINGEMENTS OF INTELLECTUAL PROPERTY RIGHTS BROUGHT BY A THIRD PARTY BY REASON OF THE PROPER USE OF THE SYSTEM. 22. THE ABOVE CLAUSES WITH THE CONTRACT WITH JT MOB ILE WILL NOW BE COMPARED WITH THE RELEVANT CLAUSES OF CONTRACT WITH BHARTI CELLULAR CONTRACT. 32. CLAUSE 19.2 READS AS UNDER: 19. ACCEPTANCE TEST IS THE RESPONSIBILITY OF BUYER OR BUYER AFFILIATE AND SHALL BE PERFORMED BY PREFERRED SUBCO NTRACTOR NOMINATED BY BUYER OR BUYER AFFILIATE AND AS APPROV ED BY SUPPLIER. ACCEPTANCE TEST SHALL BE CARRIED OUT BY THE SUBCONT RACTOR FOR EACH PURCHASE ORDER IN RESPECT OF THE SYSTEM OR EAC H PART OF THE 16 SYSTEM SUPPLIED UNDER THE PURCHASE ORDER, AS PER AC CEPTANCE TEST PROCEDURE AS MUTUALLY AGREED BETWEEN PARTIES A S PER ANNEXURE 5. IF ANY INSPECTED OR TESTED GOODS FAIL TO CONFORM TO SPECIFICATIONS AS SPECIFIED IN ANNEXURE 3 AND ANNEXURE 4, DURING T HE ACCEPTANCE TEST, BUYER OR BUYER AFFILIATE MAY REJECT SUCH GOOD S AND THE SUPPLIER SHALL EITHER REPLACE THE REJECTED GOODS OR MAKE ALL ALTERATIONS NECESSARY TO MEET SPECIFICATION REQUIRE MENTS AT NO CHARGE TO BUYER OR BUYER AFFILIATE, WITHIN A PERIOD OF SIX (6) WEEKS FROM THE DATE OF WRITTEN NOTIFICATION FROM BUYER OR BUYER AFFILIATE. 19.3.1 THE ACCEPTANCE TEST SHALL BE COMPLETED WITHI N THIRTY (30) DAYS FROM THE DATE OF COMPLETION, THE RESULT OF WHI CH SHALL BE ACCOUNTED FOR IN A PROTOCOL, AS PER ACCEPTANCE TEST PROCEDURE DOCUMENT. 19.3.2 IF BUYER OR BUYER AFFILIATE DOES NOT CARR Y OUT AND COMPLETE THE ACCEPTANCE TEST WITHIN THIRTY (30) DAY S FROM THE DATE OF COMPLETION FOR REASONS NOT ATTRIBUTABLE TO SUPPLIER, IT SHALL BE DEEMED THAT THE BUYER OR BUYER AFFILIATE H AS CARRIED OUT AND COMPLETED THE ACCEPTANCE TEST AS AFORESAID. 19.4 WITHIN FIFTEEN (15) DAYS FROM COMPLETION OF THE ACCEPTANCE TEST IN ACCORDANCE WITH ARTICLE 19.3 ABOVE, BUYER O R BUYER AFFILIATE SHALL GIVE SUPPLIER A WRITTEN NOTICE STAT ING WHETHER OR NOT THE SYSTEM OR PART OF SYSTEM (AS THE CASE MAY BE), IS ACCEPTED. ACCEPTANCE OF THE SYSTEM OR PART OF SYSTEM SHALL NO T BE REFUSED 17 BECAUSE OF MINOR DEVIATIONS, WHICH DO NOT PREVENT T HE SYSTEM OR PART OF SYSTEM TO BE PUT INTO OPERATION. HOWEVER, T HIS WILL NOT RELIEVE THE SUPPLIER FROM HIS OBLIGATION TO REMEDY SAID DEVIATIONS WITHOUT UNDUE DELAY. 19.6 IF SUPPLIER HAS NOT RECEIVED THE SAID WRITTEN NOTICE FROM BUYER OR BUYER AFFILIATE IN TERMS OF ARTICLE 19.5 A BOVE, STATING WHETHER OR NOT THE SYSTEM OR PART OF SYSTEM IS ACCE PTED, WITHIN FIFTEEN (15) DAYS FROM COMPLETION OF THE ACCEPTANCE TEST, THE SYSTEM OR PART OF SYSTEM SHALL BE DEEMED ACCEPTED A S OF THE SIXTEENTH (16TH) DAY. 19.7 IF BUYER OR BUYER AFFILIATE SHOULD COMMERC IALLY USE THE SYSTEM OR PART OF SYSTEM PRIOR TO OR WITHOUT THE AB OVE-MENTIONED ACCEPTANCE TEST, SUCH USE SHALL BE DEEMED AS ACCEPT ANCE OF THE SYSTEM OR PART OF SYSTEM. 19.8 WHEN ACCORDING TO THE ABOVE, THE SYSTEM OR PART OF SYSTEM IS ACCEPTED OR DEEMED ACCEPTED, SUCH ACCEPTA NCE SHALL BE CONFIRMED BY THE ISSUANCE BY BUYER OR BUYER AFFILIA TE OF AN ACCEPTANCE CERTIFICATE. BUYER OR BUYER AFFILIATE SH ALL NOTIFY SUPPLIER, THE NAMES OF PERSONS AUTHORISED TO ISSUES AN ACCEPTANCE CERTIFICATE. THE ACCEPTANCE CERTIFICATE SHALL BE IS SUED PROMPTLY AND AT THE LATEST THREE (3) DAYS AFTER SUPPLIER'S W RITTEN REQUEST. SUCH ACCEPTANCE CERTIFICATE SHALL BE CONCLUSIVE EVI DENCE OF THE ACCEPTANCE OF THE SYSTEM AND THE DATE ON SUCH CERTI FICATE SHALL BE DEEMED TO BE THE DATE OF ACCEPTANCE. 18 19.9 IF BUYER OR BUYER AFFILIATE DOES NOT ISSUE THE ACCEPTANCE CERTIFICATE WITHIN THE PERIOD SPECIFIED IN ARTICLE 19.4 ABOVE, IT SHALL BE DEEMED TO HAVE BEEN ISSUED BY BUYER OR BUY ER AFFILIATE TO SUPPLIER AND ALL THE PROVISIONS OF ARTICLE 19.4 SHA LL APPLY ACCORDINGLY. 19.10. IF THE SYSTEM OR PART OF SYSTEM SUPPLIED BY THE SUPPLIER IS NOT INSTALLED DUE TO REASONS WHICH CAN BE ATTRIBUTA BLE TO THE BUYER OR BUYER AFFILIATE BEYOND 150 DAYS, THEN SUCH SYSTE M OR PART OF SYSTEM WILL BE DEEMED TO BE ACCEPTED. 33. CLAUSE 23 READS AS UNDER: 23.1 SUPPLIER SHALL INDEMNIFY AND KEEP INDEMNIFIED BUYER AND BUYER AFFILIATE AGAINST ALL ACTIONS OR CLAIMS BROUG HT BY A THIRD PARTY FOR ALLEGED INFRINGEMENT OF PATENTS, REGISTER ED DESIGNS OR ANY OTHER INTELLECTUAL PROPERTY RIGHT BY REASON OF THE PROPER USE OF THE SYSTEM IN THE TERRITORY WHERE THE SYSTEM IS INS TALLED, AND SUPPLIER SHALL PROMPTLY, AT HIS OPTION AND OWN EXPE NSE, EITHER I) PROCURE FOR BUYER AND BUYER AFFILIATE THE RIGHTS FO R CONTINUED USE OF THE SYSTEM IN ITS PRESENT FORM, OR II) REPLACE OR MODIFY THE SYSTEM SO THAT IT NO LONGER I NFRINGES ANY SUCH RIGHTS, OR III) SETTLE OR DEFEND ANY FURTHER CLAIM, SUIT OR PROCEED ING AGAINST BUYER OR BUYER AFFILIATE ARISING OUT OF SUCH CONTIN UED USE, OR 19 IV) IF SUCH REMEDIES ARE NOT REASONABLY OR ECONOMICALLY FEASIBLE, SUPPLIER MAY REQUEST BUYER AND BUYER AFFILIATE TO R ETURN THE SYSTEM AND REFUND TO BUYER OR BUYER AFFILIATE T HE PURCHASE PRICE LESS A REASONABLE AMOUNT FOR DEPRECI ATION AS REFLECTED ON THE BOOKS OF BUYER OR BUYER AFFILIATE, PROVIDED ALWAYS A) THAT BUYER AND BUYER AFFILIATE WITHOUT DELAY INFOR MS SUPPLIER IN WRITING OF ANY CLAIM MADE BY REASON OF ALLEGED INFRINGEMENT AS AFORESAID AND REFRAINS FROM TAKING ACT ON ACCOUNT OF SUCH CLAIMS WITHOUT PREVIOUS APPROVAL OF SUPPLIER; B) THAT BUYER AS A BUYER AFFILIATE WITHOUT DELAY INFO RMS SUPPLIER IN WRITING IF LEGAL ACTION IS TAKEN ON ACC OUNT OF SUCH CLAIM AND THAT SUPPLIER SHALL HAVE FULL AUTHORITY T O DEFEND OR SETTLE THE SAME THROUGH ITS COUNSEL; C) THAT SUPPLIER IS INFORMED OF ALL CIRCUMSTANCES, WH ICH MAY BE OF RELEVANCE IN THE LEGAL ACTION TAKEN AND BUYER AN D BUYER AFFILIATE REFRAINS FROM ALL STEPS IN ANY LEGAL ACTI ON, WHICH MAY PREJUDICE SUPPLIER; D) THAT IN CASE SUPPLIER FAILS TO ACT AGAINST SUCH CL AIMS OR ACTIONS BUYER AND BUYER AFFILIATE SHALL HAVE THE RI GHT TO TAKE APPROPRIATE LEGAL ACTION AND SHALL BE REPAID A NY EXPENSES IN SO DOING; AND E) THAT THE ALLEGED INFRINGEMENT IS NOT ARISING OUT O F THE USE OF THE SYSTEM IN COMBINATION OR CONJUNCTION WITH ANY O THER ITEM OR THE USE THEREOF NOT SUPPLIED OR MANUFACTURE D BY 20 SUPPLIER. THIS ARTICLE 23, INFRINGEMENTS, PROVIDES SUPPLIER'S SOLE LIABILITY AND BUYER'S AND BUYER AFFILIATES SOLE REMEDY FOR C LAIMS OF ALLEGED INFRINGEMENTS OF INTELLECTUAL PROPERTY RIGHTS BROUG HT BY A THIRD PARTY BY REASON OF THE PROPER USE OF THE SYSTEM. 34. A PERUSAL OF THE ABOVE RELEVANT CLAUSES OF THE TWO CONTRACTS SHOWS THAT THERE IS NO BASIS FOR THE FINDINGS OF TH E LD. CIT(A) ABOUT THE REJECTION OF THE GOODS. THE ALLEGATIONS OF THE LD. CIT(A) HAVE BEEN DULY CONSIDERED BY THE HON'BLE HIGH COURT OF DELHI IN ASSESSEES OWN CASE IN A.YS 1997-98 AND 1998-99 [SUPRA]. THE RELE VANT FINDINGS OF THE HON'BLE HIGH COURT OF DELHI READ AS UNDER: ARTICLE 15 OF THE INSTALLATION AGREEMENT DEALS WITH ACCEPTANC E TEST MADE BY THE INSTALLATION CONTRACTOR WHICH 'INC LUDES THE INTEGRITY OF WHOLE SYSTEM AND CERTIFICATE BINDS THE ASSESSEE'. ARTICLE 17 PROVIDES WARRANTIES TO RECTIFY THE DEFECTS IN BOTH HARDWARE AND SOFTWARE PROVIDED BY THE ASSESSEE . ON THIS BASIS IT WAS ARGUED THAT THE ASSESSING OFFICER RIGH TLY CONCLUDED THAT OVERALL RESPONSIBILITY WAS ON THE ASSESSEE FOR SUPPLY, ERECTION AND AFTER SALE SERVICES AND THE ASSESSEE HAD COMPLE TE CONTROL OVER THE MANAGEMENT, FUNCTIONS AND THE ASSOCIATES. THE Q UESTION THAT FALLS FOR CONSIDERATION IS AS TO WHETHER THIS ACCEP TANCE TEST, WHICH WAS PERFORMED IN INDIA, WOULD BE RELEVANT FOR DETER MINING AS TO 21 WHETHER INCOME ACCRUED IN INDIA IN TERMS OF SECTION 5 (2)(B) OF THE ACT. 41. WE, FIND THAT THE TERMS OF CONTRACT MAKE IT CLE AR THAT ACCEPTANCE TEST IS NOT A MATERIAL EVENT FOR PASSING OF THE TITLE AND RISK IN THE EQUIPMENT SUPPLIED. IT IS BECAUSE OF TH E REASON THAT EVEN IF SUCH TEST FOUND OUT THAT THE SYSTEM DID NOT CONFORM TO THE CONTRACTIVE PARAMETERS, AS PER ARTICLE 21.1 OF THE SUPPLY CONTRACT, THE ONLY CONSEQUENCE WOULD BE THAT THE CELLULAR OPE RATOR WOULD BE ENTITLED TO CALL UPON THE ASSESSEE TO CURE THE DEFE CT BY REPAIRING OR REPLACING THE DEFECTIVE PART. IF THERE WAS DELAY CAUSED DUE TO THE ACCEPTANCE TEST NOT BEING COMPLIED WITH, ARTICLE 19 OF THE SUPPLY CONTRACT PROVIDED FOR DAMAGES. THUS, THE TAX ABLE EVENT TOOK PLACE OUTSIDE INDIA WITH THE PASSING OF THE PR OPERTY FROM SELLER TO BUYER AND ACCEPTANCE TEST WAS NOT DETERMI NATIVE OF THIS FACTOR. THE POSITION MIGHT HAVE BEEN DIFFERENT IF T HE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON THE FAILURE OF THE ACCEPTANCE TEST CARRIED OUT IN INDIA. 35. THE OBSERVATION OF THE HON'BLE HIGH COURT OF DE LHI THAT THE POSITION MIGHT HAVE BEEN DIFFERENT IF THE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON THE FAILURE OF ACCEPTANCE TEST CAR RIED OUT IN INDIA HAS BEEN EXPLAINED BY SHRI PARDIWALA BY REFERRING T O THE JUDGMENT OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAHA VIR COMMERCIAL COMPANY 86 ITR 147 WHEREIN THE FOLLOWING PRINCIPLE, INTER ALIA, WAS LAID DOWN: 22 ..... THIS SUPPOSED INCONGRUITY WAS SOUGHT TO BE E XPLAINED PER CURIAM IN KWEI TEK CHAO V. BRITISH TRADERS AND SHIP PERS LTD. (1954) 2 K.B. 459. THAT IF PROPERTY PASSED WHEN THE DOCUMENTS ARE TRANSFERRED THAT PROPERTY IS SUBJECT TO THE CONDITI ON THAT THE GOODS SHOULD RE-VEST IN THE SELLER IF ON AN EXAMINA TION BY THE BUYER HE FINDS THEM NOT TO BE IN ACCORDANCE WITH THE CONT RACT. IT IS NOT NECESSARY TO CONSIDER THIS ASPECT BECAUSE IN ANY CA SE THE ASCERTAINMENT OF THE OBLIGATIONS UNDER THE CONTRACT WILL DETERMINE TO WHAT EXTENT THE TRANSFER OF PROPERTY IS SUBJECT TO A CONDITION OR IF THE PROPERTY PASSES CONDITIONALLY WHETHER THE OWNERSHIP LEFT IN THE SELLER IS THE REVERSIONARY INTEREST IN THE P ROPERTY IN THE EVENT OF THE CONDITIONS SUBSEQUENT OPERATING TO RES TORE IT TO HIM. IN ANY CASE WHERE THE PERFORMANCE OF SOME CONDITION IS IMPOSED UPON THE BUYER BUT IS NOT MADE A CONDITION OF THE T RANSFER OF THE PROPERTY, THE PROPERTY ONCE PASSED IS NOT REVESTED IN THE SELLER BY THE BUYER'S SUBSEQUENT DEFAULT.' 36. IT IS THE SAY OF SHRI PARDIWALA THAT IN THE CAS E OF MAHAVIR COMMERCIAL COMPANY [SUPRA], THE COURT HAS EXPLAINED THE OBSERVATIONS MADE BY THE HON'BLE HIGH COURT OF DELHI LUCIDLY. 37. THE SECOND STEP TAKEN BY THE LD. CIT(A) WAS CON FRONTING THE EVIDENCES COLLECTED DURING SURVEY AND CALLED FOR SP ECIFIC COMMENTS OF THE ASSESSEE. THIS HAS BEEN EXTRACTED BY THE LD. CIT(A ) AT PAGES 27 TO 37 OF HIS ORDER WHICH HAVE BEEN SUMMARISED AS UNDER : 23 MOST OF THE DOCUMENTS COLLECTED DURING SURVEY DO NO T RELATE TO THE CAPTIONED AYS. THE DOCUMENTS COLLECTED DURING SURVEY RELATE TO A P ERIOD WHEN BUSINESS MODEL OF THE APPELLANT HAD CHANGED BECAUSE THE CHANGED BUSINESS MODEL WAS EFFECTIVE FROM APRIL 1, 2006 AND DOCUMENTS IMPOUNDED DURING SURVEY CONDUCTED ON NOVE MBER 22, 2007 RELATES TO SUCH CHANGED BUSINESS MODEL. THE APPELLANT CLARIFIED THAT WITH NEW BUSINESS MODE L EFFECTIVE FROM 01/04/2006, THE APPELLANT ONLY INTERACTED WITH EIL AND THEN EIL STARTED DOING BUSINESS WITH INDIAN CELLULA R OPERATORS, 38. AS CAN BE SEEN FROM THE ABOVE SUMMARY AND DOCUM ENTS CONFRONTED TO THE ASSESSEE, THE SO CALLED EVIDENCES /DOCUMENTS DID NOT PERTAIN TO ASSESSMENT YEARS 1999-2000 TO 2004-05. AT PARA 5.30, THE LD. CIT(A) HAS OBSERVED THAT THE TELECOM PROJECTS G ENERALLY RUN OVER FOR THREE OR MORE YEARS. THEREFORE, THE ROLE OF TH E APPELLANT ENTITY TO SUPPLY THE TELECOM SOLUTION IS ALSO SPREAD ACROSS T HE YEARS AND THE BUSINESS MODEL FOR SUCH CONTRACTS REMAINED SAME ACR OSS THE YEARS. 24 39. IN OUR CONSIDERED OPINION, SUCH OBSERVATIONS OF THE LD. CIT(A) SHOULD GO AGAINST HIM BECAUSE IF NOTHING IS CHANGED , THEN WHY DID HE DIFFER FROM THE FINDINGS OF THE SPECIAL BENCH OF TH E TRIBUNAL WHICH ORDER WAS UPHELD BY THE HON'BLE HIGH COURT OF DELHI [SUPRA]. 40. IT IS WORTH MENTIONING HERE THAT THE BUSINESS M ODEL OF THE APPELLANT COMPANY CHANGED FROM 01.04.2006 AND THERE FORE, ANY ADVERSE INFERENCE DRAWN MAY BE RELEVANT FOR THE ASS ESSMENT YEAR COMMENCING AFTER 01.04.2006 AND CERTAINLY NOT FOR A SSESSMENT YEARS UNDER APPEAL BEFORE US. 41. TO SUBSTANTIATE HIS FINDINGS, THE LD. CIT(A) FU RTHER CONSIDERED THE DOCUMENTS REFLECTING JOINT PARTICIPATION IN BID MAN AGEMENT, DOCUMENTS REFLECTING CONTROL/INFLUENCE OF APPEAL ON EIL, DOCUMENTS REFLECTING CONTROL/INFLUENCE OF APPEAL ON EIL, DOCU MENTS REFLECTING ACTIVITY PERFORMED BY EIL ON BEHALF OF APPELLANT IN INDIA AND DOCUMENTS REFLECTING FUNCTION OF SOFTWARE COMPATIBI LITY TO THE CUSTOMER REQUIREMENTS. 25 42. FOR THIS, THE LD. CIT(A) HEAVILY DREW SUPPORT F ROM THE SHOW CAUSE NOTICE ISSUED UNDER THE CUSTOMS ACT, 1962 TO BHARTI TELEVENTURES LTD AND ERICSSON INDIA LTD. THE SHOW CAUSE NOTICE PROV IDES THAT : INVESTIGATIONS CARRIED OUT BY THE DRI RESULTED INT O FINDING THAT THE SOFTWARE IS BEING DOWNLOADED BY THE EMPLOYEES O F EIL FROM THE SERVER LOCATED OUTSIDE INDIA AND THE OD/CDS ARE BEING PROVIDED TO THE CUSTOMERS 43. WE HAVE THE BENEFIT OF THE JUDGMENT IN THE CASE OF BHARTI AIRTEL VS COMMISSIONER OF CUSTOMS, BANGALORE WHEREIN AT CL AUSE 1.3, THE CESTAT HAS CONSIDERED APPEAL NO. C/575/2008 IS BY M /S ERCISSON INDIA PVT LTD HEREAFTER REFERRED TO AS EIL OR THE THIRD A PPELLANT AGAINST THE ORDER OF THE COMMISSIONER NO. 6/2008 DATED 30.04.20 08 CHALLENGING THE IMPOSITION OF PENALTY OF RS. 10 CRORES U/S 112( A) OF THE CUSTOMS ACT. 44. AT CLAUSE 4.2, IT IS MENTIONED AS UNDER: 4.2 PROCEEDINGS WERE INITIATED BY ISSUANCE OF SHOW-CAU SE NOTICES DATED 29-3-2005, 9-3-2006, 29.05.2006 AND 29.05.200 6 TO THE APPELLANT-1 WHEREIN IT WAS PROPOSED TO 26 ADDING THE VALUE OF SOFTWARE SEPARATELY IMPORTED UN DER RULE 4 OF THE CUSTOMS VALUATION RULES, 1998 READ WITH SE CTION 14 OF THE CUSTOMS VALUATION RULES, 1962; DEMAND DUTY OF RS. 28,67,32,517/-, RS. 53,35,28,802 /-, RS. 120,73,95,283/-, RS. 3,67,47,428/-UNDER THE PROVISO TO SECTION 28(1) OF THE CUSTOMS ACT, 1962 ALONG WITH A PPLICABLE INTEREST UNDER SECTION 28AB IBID: CONFISCATE THE EQUIPMENT UNDER SECTION 111(M) OF TH E CUSTOMS ACT, 1962; AND IMPOSE PENALTY UNDER SECTION 112(A)/114A OF THE CUSTOMS ACT, 1962. 4.3 PROCEEDINGS WERE INITIATED BY ISSUANCE OF SHOW-CAU SE NOTICES DATED 29-5-2006 AND 31-5-2006 TO THE APPELLANT-2 WH EREIN IT WAS PROPOSED TO ; REJECT THE VALUES DECLARED IN RESPECT OF TELECOM EQ UIPMENTS IMPORTED AND RE-DETERMINE THE ASSESSABLE VALUE BY A DDING THE VALUE OF SOFTWARE SEPARATELY IMPORTED UNDER RUL E 14 OF THE CUSTOMS VALUATION RULES, 1998 READ WITH SECTION 14 OF THE CUSTOMS VALUATION RULES, 1962; DEMAND DUTY OF RS. 5,80,10,601/- + RS. 3,30,83,584/ - UNDER THE PROVISO TO SECTION 28(1) OF THE CUSTOMS ACT, 19 62 ALONG WITH APPLICABLE INTEREST UNDER SECTION 28AB IBID: 27 CONFISCATE THE EQUIPMENT UNDER SECTION 111(M) OF TH E CUSTOMS ACT, 1962; AND IMPOSE PENALTY UNDER SECTION 112(A)/114A OF THE CUSTOMS ACT, 1962. 4.4 THE SHOW CAUSE NOTICES ALSO PROPOSED PENALTIES ON EIL, THE THIRD APPELLANT. 45. AT CLAUSE 21.4, THE FOLLOWING OBSERVATIONS HAVE BEEN MADE: (A) THE ADG, DRI HAS ONLY ISSUED THE SHOW-CAUSE NOTICES AND DID NOT ADJUDICATE THE CASES. ADG, DRI HAD BEEN DULY AP POINTED AS COLLECTOR BY NOTIFICATION NO. 19/90-CUS. (N.T.), DA TED 26-4- 1990. FURTHER, HE HAD BEEN SPECIFICALLY EMPOWERED B Y THE BOARD VIDE CIRCULAR NO. 4/99-CUS., DATED 15-2-1999 TO ISS UE SHOW- CAUSE NOTICES AND THE SAID CIRCULAR HAS NOT BEEN WI THDRAWN. ADG, DRI HAD BEEN DULY APPOINTED AS COMMISSIONER UN DER NOTIFICATION NO 17/2002-CUS. (N.T.), DATED 25-10-20 02. SUBSEQUENTLY, NOTIFICATION NO. 44/2011 CONFERS THE FUNCTIONS OF PROPER OFFICERS FOR THE PURPOSES OF SECTION 17 A ND SECTION 28 OF THE CUSTOMS ACT. FURTHER, AMENDMENT (DATED 16 -9-2011) TO SECTION 28 MAKES IT CLEAR THAT ALL PERSONS APPOI NTED AS OFFICERS OF CUSTOMS UNDER SUB-SECTION 1 OF SECTION 4 BEFORE 16- 7-2011 SHALL BE DEEMED TO HAVE AND ALWAYS HAD THE POWER OF ASSESSMENT UNDER SECTION 17 AND SHALL BE DEEMED TO HAVE BEEN AND ALWAYS HAD BEEN PROPER OFFICERS' FOR THE PURPOSE OF SECTION 28. 28 (B) THE ISSUANCE OF SHOW -CAUSE NOTICE BY ADG DRI AND ITS ADJUDICATION BY THE SAME OFFICER ON BEING TRANSFERR ED AND POSIES AS COMMISSIONER OF CUSTOMS DO NOT INVOLVE AN Y VIOLATION OF PRINCIPLES OF NATURAL JUSTICE (C) THE FACT THAT NO CROSS-EXAMINATION WAS GRANTED OF THE AUTHOR OF CAIR REPORT IS NOT IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS FURTHER QUESTIONNAIRE GIVEN BY THE ASSESSEE STAN DS REPLIED ON BEHALF OF THE GROUP OF SCIENTISTS. FURTHER THE RECC RTS OF TWO EXPERTS PRODUCED BY THE APPELLANTS STAND ADMITTED A ND EXAMINED BY THE COMMISSIONER. (D) THE APPELLANTS (1) AND (2) IMPORTED TELECOM EQUIPME NT SYSTEMS AND DECLARED THE SAME AS MSG CLASSIFIABLE UNDER CHA PTER HEADING 85.15, BSC AND BTS CLASSIFIABLE UNDER CHAPT ER HEADING 85.25. THEY DID NOT DISCLOSE PRELOADING OF SOFTWARE IN THE FACTORY IN SWEDEN. THERE WAS A SINGLE CONTRACT FOR PURCHASE OF EQUIPMENTS; THERE WAS NO OPTION BUT TO BUY THE SO-C ALLED HARDWARE AND SOFTWARE ONLY AS A PACKAGE; AND NO SEP ARATE FIXED PRICE WAS AVAILABLE FOR THE SOFTWARE COMPONENT. IN FACT, NO PRICE FOR BTS SOFTWARE WAS INDICATED FOR PERIOD PRI OR TO SEPTEMBER 2001. (E) THE PROGRAMS THAT MAKE THE SWITCHING EQUIPMENT FUNC TION ARE NOT INDEPENDENT SOFTWARE AND CANNOT BE MARKETED SEP ARATELY. SIMILARLY, THE PROGRAMS REQUIRED TO MAKE THE BTS FU NCTIONAL ARE LOADED ON TO FLASH DRIVE AND ARE INTEGRAL PART OF B TS EQUIPMENT 29 (F) THE SEPARATELY IMPORTED SOFTWARES ARE FOUND TO BE D UPES COPIED IN EIL, GURGAON. UNDISPUTEDLY, THE IMPUGNED SOFTWARE IS PROPRIETARY SOFTWARE. IT HAS NOT BEEN EXPLAINED AS TO HOW THE SAME WAS PERMITTED TO BE COPIED BY A THIRD PARTY, N AMELY, EIL. IT WAS CLAIMED THAT IT MIGHT BE A COST-SAVING MEASU RE ADOPTED BY ERICSSON AB SWEDEN. ALLOWING COPYING OF PROPRIET ARY SOFTWARE BY A THIRD PARTY (EVEN IF THE SAID PARTY H APPENS TO BE A SUBSIDIARY) WAS NOT A COST-SAVING MEASURE BUT P ART OF A DESIGN TO EVADE CUSTOMS DUTY. NO RECORDS WERE KEPT FOR SUCH COPYING OF SOFTWARE. THE COPIED SOFTWARE WAS SENT T O SWEDEN AND DISPATCHED BACK TO INDIA. THE CDS/ODS WERE NOT IN PROPER PACKING AND NOT PROPERLY LABELLED DEFEATING THE CLA IMED STATUS OF THE SOFTWARE. THEY WERE NOT OPENED AND NOT USED TILL THEY WERE SEIZED BY THE DRI AUTHORITIES. THE APPELLANTS HAVE NOT CHOSEN TO ASK FOR PROVISIONAL RELEASE OF THE SAID I TEMS EVEN THOUGH THE TOTAL DECLARED VALUE WAS RS. 113.50 CROR ES. THIS IS TO BE CONTRASTED WITH THEIR EFFORTS TO TAKE PROVISIONA L RELEASE OF SEIZED EQUIPMENTS WORTH RS. 9.94 CRORES AFTER FURNI SHING BANK GUARANTEE WORTH RS. 2,35,43,253/-. IN FACT, THERE W AS NO PROPOSAL TO CONFISCATE THE SAID SEIZED SOFTWARE WIT H DECLARED VALUE RUNNING TO HUNDREDS OF CRORES. IN OTHER WORDS , THE DEPARTMENT HAS TREATED THE SAID GOODS AS UNWORTHY O F CONFISCATION AND THE APPELLANT HAS TREATED THE SAME AS UNWORTHY OF RETRIEVAL. (G) THE EQUIPMENT IMPORTED HAD THE SOFTWARE PRELOADED, IN FACT, WITH A BACKUP. IN ADDITION, UNDISPUTEDLY, THE APPEL LANTS COULD HAVE DOWNLOADED THE SOFTWARE THROUGH INTERNET IF TH E BACKUP 30 ALSO CRASHES. UNDER THESE CIRCUMSTANCES, WHAT WAS S EPARATELY IMPORTED AS SOFTWA| CLASSIFIED UNDER 85.24 CAN BE APPROPRIATELY CONSIDERED ONLY AS E-WASTE. (H) THE CLAIM THAT THE PERMISSION TO USE THE SOFTWARE I .E., LICENCE FOR USE OF THE SOFTWARE WAS ASSOCIATED WITH THE SOF TWARE SEPARATELY IMPORTED IN CDS/ODS HAS NOT BEEN SUBSTAN TIATED. THE LICENCE GRANTED FOR USE OF SOFTWARE OBVIOUSLY S HOULD BE ASSOCIATED WITH THE SOFTWARE PRELOADED IN THE FACTO RY, ALONG WITH BACKUP, WHICH ALONE WAS UTILIZED/USED FOR THE INTENDED PURPOSE. TO SAY THAT THE LICENCE WAS ASSOCIATED WIT H THE UNUSED SOFTWARE AND NOT TO THE SOFTWARE ACTUALLY USED IS N OT LOGICAL, TO SAY THE LEAST. (I) THE DISPUTE IS NOT ABOUT CLASSIFICATION OF THE SEPA RATELY IMPORTED SOFTWARE WHICH WE HAVE CONSIDERED NOTHING MORE THAN E-WASTE. THE DISPUTE IS WHETHER WHAT WAS PRELOADED IN THE HARD DISK/FLASH DRIVE AT FACTORY IN SWEDEN BEFORE DISPAT CH SHOULD BE PULLED OUT OR DISINTEGRATED FROM THE MACHINE AND GIVEN A SEPARATE STATUS AND SHOULD BE CLASSIFIED UNDER 85.2 4 AND ITS VALUE SHOULD BE EXCLUDED FOR DETERMINING THE VALUE OF THE IMPORTED EQUIPMENTS. IT IS NOT THE CASE THAT THE AP PELLANTS BROUGHT THE SOFTWARE IN CDS/ODS AND PRESENTED THE S AME ALONG WITH THE HARDWARE AND SOUGHT CLASSIFICATION OF/BOTH HARDWARE AND SOFTWARE SEPARATELY. (J) THE FINAL COST OF EQUIPMENT INCLUDED THE COST OF TH E PROGRAMS IN THE FORM OF SOFTWARE. EQUIPMENT WAS IMPORTED BY THE ASSESSEES 31 DECLARING IT AS HARDWARE AND DECLARING ITS VALUE LE SS TO THE EXTENT OF THE CORRESPONDING SOFTWARE PRICE INDICATE D FOR THE SOFTWARE. (K) THE PROGRAMS IN THE SOFTWARE DEFINE AND CHARACTERIZ E THE PARTICULAR HARDWARE AND ELEVATE THE SAME TO THE FUN CTIONAL APPARATUS/EQUIPMENT. THE SOFTWARE IS WRITTEN IN A S PECIALIZED LANGUAGE PLEX WHICH IS PROPRIETARY IN NATURE. THE S OFTWARE IS MACHINE-SPECIFIC AND THE SAME IS MANDATORY REQUIRED FOR WORKING OF THE SAID MACHINE. IT HAS NOT BEEN SHOWN THAT THERE IS SEPARATE IDENTITY FOR THE IMPUGNED SOFTWARE MARKETA BLE AS A SEPARATE COMMODITY. WE HAVE NOT BEEN SHOWN THAT THE RE WAS AN OPTION TO BUY THE IMPUGNED SOFTWARE SEPARATELY. (L) THERE IS NO JUSTIFICATION FOR EXCLUDING THE PRICE O F PRELOADED SOFTWARE FROM THE VALUE OF EQUIPMENTS AS CLAIMED BY THE ASSESSEE-APPELLANTS. (M) THERE IS CLEAR EVIDENCE OF DELIBERATE UNDER DECLARA TION OF VALUE OF THE IMPORTED EQUIPMENTS BY THE ASSESSEE-APPELLA NTS THROUGH A GROSSLY DECEPTIVE METHOD WITH INTENTION TO E. SEE CS. DUTY IN VIEW OF THE ABOVE, THE INVOCATION OF EXTENDED PERIO D FOR DEMAND OF DUTY, CONFISCATION OF THE IMPORTED GOODS, AND IMPOSITION OF PENALTIES OR THE ASSESSEES ARE JUSTIF IED. 32 46. AND FINALLY, AT CLAUSE 23(H), THE FOLLOWING FIN DINGS HAVE BEEN GIVEN: 23(H) IN VIEW OF THE DELIBERATE MISDECLARATION WIT H INTENTION TO EVADE DUTY, THE EXTENDED PERIOD OF LIMITATION IS IN VOCABLE. PENALTIES ARE ALSO IMPOSABLE ON THE APPELLANT-ASSESSEES. HOWE VER, IN THE ABSENCE OF EVIDENCE NO PENALTY CAN BE IMPOSED ON EI L. 47. THE ENTIRE BASIS OF THE FINDINGS OF THE LD. CIT (A) HAS BEEN DEMOLISHED BY THIS ORDER OF THE CESTST. 48. THE LD. CIT(A), THEREAFTER, PROCEEDED BY CONSID ERING THE PLACE OF SIGNING OF THE CONTRACT TO EMPHASIZE THAT EIL IS PE OF EAB IN INDIA AND FURTHER OBSERVED THAT NOT ONLY THE CONTRACTS WERE SIGNED IN INDIA, BUT A NUMBER OF EMPLOYEES OF THE ASSESSEE COMPANY AND T HEIR ASSOCIATED COMPANIES VISITED INDIA FOR THE PURPOSE OF NET WORK SURVEY AND TO NEGOTIATE THE TERMS OF THE CONTRACT. 49. THESE ADVERSE OBSERVATIONS OF THE LD. CIT(A) H AVE BEEN DULY CONSIDERED BY THE HON'BLE HIGH COURT OF DELHI IN AS SESSEES OWN CASE FOR ASSESSMENT YEARS 1997-98 AND 1998-99 [SUPRA] AS UNDER : 33 43. THUS, OVERALL AGREEMENT DOES NOT RESULT THE IN COME ACCRUING IN INDIA. THE EXECUTION OF AN OVERALL AGREEMENT IS PROMPTED BY PURELY COMMERCIAL CONSIDERATIONS AS THE INDIA CELLU LAR OPERATOR WOULD BE DESIROUS OF HAVING A SINGLE ENTITY THAT HE COULD LIAISE WITH, A FACT WHICH EVEN THE BOARD HAS NOTED IN ITS INSTRU CTION NO.1829 DATED 21 ST SEPTEMBER, 1989. ALTHOUGH INSTRUCTION N UMBER 1829 STANDS WITHDRAWN BY VIRTUE OF CIRCULAR NO.7/2008 DA TED 22ND OCTOBER, 2009, SUCH WITHDRAWAL CAN HAVE NO RETROSPE CTIVE EFFECT AND THE PRINCIPLE LAID DOWN IN INSTRUCTION NO. 1829 MUST CONTINUE TO GOVERN THE ASSESSMENT FOR THE RELEVANT YEAR. 44. THE AFORESAID ANALYSIS WILL BRING FORTH THE LEG AL POSITION THAT THE PLACE OF NEGOTIATION, THE PLACE OF SIGNING OF A GREEMENT, OR FORMAL ACCEPTANCE THEREOF OR OVERALL RESPONSIBILITY OF THE ASSESSEE ARE IRRELEVANT CIRCUMSTANCES. SINCE THE TRANSACTION RELATES TO THE SALE OF GOODS, THE RELEVANT FACTOR AND DETERMINATIV E FACTOR WOULD BE AS TO WHERE THE PROPERTY IN THE GOODS PASSES. IN THE PRESENT CASE, THE FINDING IS THAT PROPERTY PASSED ON THE HI GH SEAS. CONCEDEDLY, IN THE PRESENT CASE, THE GOODS WERE MAN UFACTURED OUTSIDE INDIA AND EVEN THE SALE HAS TAKEN PLACE OUT SIDE INDIA. ONCE THAT FACT IS ESTABLISHED, EVEN IN THOSE CASES WHERE IT IS ONE COMPOSITE CONTRACT (THOUGH IT IS NOT FOUND TO BE SO IN THE PRESENT CASE) SUPPLY HAS TO BE SEGREGATED FROM THE INSTALLA TION AND THE ONLY THEN WOULD QUESTION OF APPORTIONMENT ARISE HAV ING REGARD TO THE EXPRESSED LANGUAGE OF SECTION 9 (1) (I) OF THE ACT, WHICH MAKES THE INCOME TAXABLE IN INDIA TO THE EXTENT IT ARISES IN INDIA. 34 50. CONSIDERING THE FACTS EMANATING FROM THE ORDERS OF THE FIRST APPELLATE AUTHORITY, WE ARE OF THE CONSIDERED OPINI ON THAT THEY ARE NOT AT ALL DISTINGUISHABLE ON THE FACTS OF ASSESSMENT Y EARS 1997-98 AND 1998-99 AND SINCE ON THOSE FACTS THE SPECIAL BENCH OF THIS TRIBUNAL HAS DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE, WHICH ORDER HAS BEEN UPHELD BY THE HON'BLE HIGH COURT OF DELHI [SUPRA], WE ARE OF THE CONSIDERED VIEW THAT THE PROPERTY IN GOODS HAVE BEE N PASSED OUTSIDE INDIA ALONGWITH RISKS AND REWARD. 51. NO DOUBT THE CONTRACT IN QUESTION WAS SIGNED IN INDIA AND THE ACCEPTANCE TEST HAD TO BE PERFORMED IN INDIA WOULD NOT JUSTIFY THE FINDINGS OF THE LD. CIT(A) IN LIGHT OF THE JUDGMENT OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF ADDITIONAL CIT VS . SKODA EXPORT 172 ITR 358. THE RATIO LAID DOWN BY THE HON'BLE SUPREM E COURT IN THE CASE OF ISHIBKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD VS. DIT 288 ITR 408 SQUARELY APPLY ON THE FACTS OF THE CASE WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT THE FACT THAT THE CONTRACT WAS SIGNED IN INDIA IS OF NO MATERIAL CONSEQUENCE SINCE ALL THE ACTIVITIES IN CONNECTION WITH OFF SHORE SUPPLIES WERE CARRIED OUTSIDE INDIA. WE ARE THEREFORE, OF THE VIEW THAT THE DECISION IN THE CASE OF ISHIBKAWAJIMA -HARIMA HEAVY INDUSTRIES LTD [SUPRA] COVERS THE ISSUE AS TO WHETH ER ANY PART OF THE 35 PROFIT ARISING FROM SUPPLY OF EQUIPMENT BY THE ASSE SSEE IS CHARGEABLE TO TAX. 52. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN LIGHT OF THE DISCUSSION HEREINABOVE, WE DO NOT FIND ANY MERITS I N THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF ADDITION SUSTAINED BY HIM. WE ARE OF THE CONSIDERED VIEW THAT THE APPELLANT HAS NO BUSINESS CONNECTION IN INDIA IN RESPECT OF SUPPLY OF GSM SYSTEM BY THE APPELLANT TO CELLULAR OPERATORS IN INDIA AND FURTHER, THERE IS NO PE IN A NY FORM IN INDIA IN THE CAPTIONED ASSESSMENT YEARS AND THEREFORE, THE QUEST ION OF ATTRIBUTION OF PROFIT DOES NOT ARISE AT ALL. 53. BEFORE PARTING, THE LD. DR HAS PLACED STRONG RE LIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF HUAWEI TEC HNOLOGIES CO, LTD ITA NO. 1500/DEL/2014 AND OTHERS FOR ASSESSMENT YEA RS 2009-10 TO 2016-17. HOWEVER, WE ARE OF THE CONSIDERED VIEW TH AT THE FACTS OF THE CASE IN HAND ARE CLEARLY DISTINGUISHABLE FROM THE F ACTS OF THAT CASE IN AS MUCH AS IN THAT CASE WHEREIN AT ARTICLE 6.3 IT H AS BEEN MENTIONED RISK OF LOSS OF GOODS SHALL PASS FROM SELLER TO OWN ER UPON ACCEPTANCE OF THE GOODS. WHEREAS THE FACTS OF THE CASE IN HAND 36 SHOW THAT RISK AND REWARD PASS OVER AT THE PORT OF SWEDEN AT THE TIME OF DELIVERY OF GOODS. 54. GROUND NO. 4 WITH ALL ITS SUB-GROUNDS ARE ALLOW ED. 55. GROUND NO. 7 RELATES TO CHARGING OF INTEREST U/ S 234B OF THE ACT. 56. THIS ISSUE IS NOW NO MORE RES INTEGRA IN LIGHT OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MITSUBISHI CORPORATION TS 869-SC-2021 DATED 17.09.2021 WHEREIN THE HON'BLE AP EX COURT HAS HELD THAT PRIOR TO ASSESSMENT YEAR 2013-14, INTEREST CAN NOT BE CHARGED U/S 234B OF THE ACT. 57. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER T O CHARGE INTEREST AS PER PROVISIONS OF LAW KEEPING IN MIND THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF MITSUBHISHI CO RPORATION [SUPRA]. 58. AS A RESULT, ALL THE CAPTIONED APPEALS OF THE A SSESSEE ARE ALLOWED. 37 59. THE COMMON GRIEVANCE OF THE REVENUE IN THE CAPT IONED APPEALS READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING AN ATTRIBUTION PERCENTA GE OF ONLY TWENTY PERCENT ON ACCOUNT OF HARDWARE SALES AS AGAI NST FIFTY PERCENT FOR A.Y. 1999-2000 TO A.Y. 2001-2002; ZERO PERCENT FOR A.Y.2002-03 DUE TO WORLDWIDE LOSS AND HUNDRED PERCE NT FOR A.Y. 2003-04 & A.Y. 2004-05, WHEREAS THE FACTS OF SURVEY ACTION CARRIED OUT BY THE DEPARTMENT ON 22.11.2007 MERITED AN ATTRIBUTION OF HIGHER PERCENTAGE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PAYMENT IN RES PECT OF SUPPLY OF SOFTWARE WAS IN NATURE OF BUSINESS INCOME AND CA NNOT BE CHARACTERIZED AS ROYALTY EITHER UNDER THE INCOME TA X ACT OR UNDER THE INDO-SWEDEN DTAA? 60. THIS ISSUE IN NOW NO MORE RES INTEGRA BY THE JU DGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF ENGINERING ANA LYSIS CENTRE OF EXCELLENCE PVT LTD IN CIVIL APPEAL NO. 8733 TO 8734 OF 2018 ALONGWITH A BUNCH OF 104 APPEALS. THE RELEVANT FINDINGS OF THE HON'BLE APEX COURT READ AS UNDER: 38 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED I N ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGMEN T, IT IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS MENTIONE D IN SECTION 195 OF THE INCOME TAX ACT TO DEDUCT TAX AT SOURCE, AS T HE DISTRIBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS, W HICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPYRIGHT. THE PROVISIONS CONTAINED IN THE INCOME TAX ACT (SECTION 9(1)(VI), ALONG WITH EXPLANATIONS 2 AND 4 THEREOF), WHICH DEAL WITH ROYALTY, NOT BEI NG MORE BENEFICIAL TO THE ASSESSEES, HAVE NO APPLICATI ON IN THE FACTS OF THESE CASES. 169. OUR ANSWER TO THE QUESTION POSED BEFORE US, IS THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUT ORS TO NON- RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSIDERATION FOR THE RESALE/USE OF THE COMPUTER SO FTWARE THROUGH EULAS/DISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT O F ROYALTY FOR THE USE OF COPYRIGHT IN THE COMPUTER SOFTWARE, AND THAT THE SAME DOES NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA, AS A RESULT OF WHICH THE PERSONS REFERRED TO IN SECTION 195 OF THE INCOME TAX ACT WERE NOT LIABLE TO DEDUCT ANY TDS UNDER SECTION 195 OF THE INCOME TAX ACT. THE ANSWER TO THIS QUESTION WILL AP PLY TO ALL FOUR CATEGORIES OF CASES ENUMERATED BY US IN PARAGRAPH 4 OF THIS 39 JUDGMENT. 170. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF THE HIGH COURT OF KARNATAKA ARE ALLOWED, AND THE AFORESAID JUDGMEN TS ARE SET ASIDE. THE RULING OF THE AAR IN CITRIX SYSTEMS (AAR) (SUPRA) IS SET ASIDE. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF T HE HIGH COURT OF DELHI ARE DISMISSED. 61. RESPECTFULLY FOLLOWING THE DECISION OF THE HON' BLE SUPREME COURT, ALL THE CAPTIONED APPEALS BY THE REVENUE ARE DISMIS SED. 62. TO SUM UP, IN THE RESULT : REVENUES APPEALS: ITA NO. 1700/DEL/2018 - DISMISSED ITA NO. 1701/DEL/2018 - DISMISSED ITA NO. 1702/DEL/2018 - DISMISSED ITA NO. 1703/DEL/2018 - DISMISSED ITA NO. 1704/DEL/2018 - DISMISSED ITA NO. 1705/DEL/2018 - DISMISSED 40 ASSESSEES APPEALS ITA NO. 1732/DEL/2018 - ALLOWED ITA NO. 1733/DEL/2018 - ALLOWED ITA NO. 1734/DEL/2018 - ALLOWED ITA NO. 1735/DEL/2018 - ALLOWED ITA NO. 1736/DEL/2018 - ALLOWED ITA NO. 1737/DEL/2018 - ALLOWED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.1 0.2021. SD/- SD/- [AMIT SHUKLA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH OCTOBER, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 41 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE DATE ON WHICH THE APPROVED DRAFT COMES TO DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE DATE ON WHICH THE FAIR ORDER COMES BACK TO DATE ON WHICH THE FINAL ORDER IS UPLOADED ON 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 DATE OF DISPATCH OF THE ORDER