NetApp B.V., Noida V. DCIT (International Taxation), New Delhi

ITA 1882/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4337 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 29-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR PRABHA KANT
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment; Set aside
• Section: 271(1)(c); 143(3); 234B; 144C; 264; 44DA; 13; 22; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.1882/DEL/2017 (ASSESSMENT YEAR 2013-14) NET APP B.V. C/O MR. VSHAL PANDEY SRBC & ASSOCIATES LLP. INDIA GLYCOS PVT. LTD., 4 TH & 5 TH FLOOR, COMMERCIAL COMPLEX BUILDING, PLOT NO.2B, TOWER-2, GAUTAM BUDDHA NAGAR, SECTOR-126, NEAR LOTUS VALLEY SCHOOL, NOIDA EXPRESS-201 304. PANAADCN 2178C VS. DY. CIT, CIRCLE-2(2)(2), INTERNATIONAL TAX, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. G.C. SRIVASTAVA, SR. ADV. SH. MAYANK PATAWARI, CA RESPONDENT BY DR. PRABHAKANT, CIT-DR DATE OF HEARING 01.07.2021 DATE OF PRONOUNCEMENT 20.09.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE FINAL ASSESSMENT ORDER DATED 31.01.2017 PASSED U/S 143(3) 2 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 ( HEREINAFTER CALLED AS THE ACT) AND PERTAINS TO ASSESSMENT YEA R 2013-14. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A NON- RESIDENT COMPANY REGISTERED IN NETHERLANDS AND IS A LSO A TAX RESIDENT OF NETHERLANDS. THE ASSESSEE COMPANY IS E NGAGED IN THE BUSINESS OF SELLING STORAGE EQUIPMENT AND PRODUCTS AND IS ALSO RENDERING CERTAIN SERVICES IN THE ASIA-PACIFIC REGION. THE COMPANY SELLS NETAPP B.V. PRODUCTS AND SERVICES IN INDIA THROUGH THIRD PARTY DISTRIBUTORS APPOINTED ON A NON-EXCLUSI VE BASIS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER (AO), ON THE BASIS OF THE VIEW TAKEN WHILE FRAMING ASSESSMENTS FO R ASSESSMENT YEARS 2008-09, 2010-11 AND 2012-13, HELD THAT THE A SSESSEE HAS PERMANENT ESTABLISHMENT (PE) IN INDIA. THE ASSESS ING OFFICER, VIDE PARA 10 OF THE FINAL ASSESSMENT ORDER, HAS HEL D THAT THE BUSINESS PREMISES OF NETAPP INDIA CONSTITUTED PERMA NENT ESTABLISHMENT OF THE ASSESSEE COMPANY IN TERMS OF A RTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). THE ASS ESSING OFFICER FURTHER HELD THAT M/S NETAPP INDIA WAS AN A GENCY OF THE ASSESSEE COMPANY IN INDIA AND ATTRIBUTION OF INCOME /LOSS WAS DONE 3 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT AS PER PARA 16 OF THE DRAFT ASSESSMENT ORDER. IN AD DITION TO THIS, THE ASSESSING OFFICER ALSO HELD THAT THE RECEIPT FROM S ALE OF EMBEDDED SOFTWARE IN THE NATURE OF ROYALTY AND TAXED AN AMOUN T OF RS.14,99,39,032/- AS BUSINESS INCOME UNDER ARTICLE 7 OF DTAA. ON SIMILAR LINES, THE SERVICE LEVY CHARGED BY THE ASSE SSEE WAS BROUGHT TO TAX AS FEES FOR TECHNICAL SERVICES (FTS) EFFECTI VELY CONNECTED TO THE PE. 2.1 THE ASSESSEE COMPANY FILED OBJECTIONS B EFORE THE LD. DISPUTE RESOLUTION PANEL (DRP) IN TERMS OF SECTION 144C OF THE ACT, BUT THE OBJECTIONS OF THE ASSESSEE WERE DISMISSED B Y THE LD. DRP AND, THEREAFTER, THE IMPUGNED FINAL ASSESSMENT WAS P ASSED. 2.2. AGGRIEVED BY THE FINAL ASSESSMENT ORDER , THE ASSESSEE COMPANY HAS NOW APPROACHED THIS TRIBUNAL AND HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED AO HAS ERRED, IN LAW, BY HOLDING T HAT ON ACCOUNT OF THE ACTIVITIES OF NETAPP INDIA PRIVATE L IMITED ('NETAPP INDIA'), A PERMANENT ESTABLISHMENT ('PE') IS CONSTITUTED FOR NETAPP B.V. IN INDIA UNDER THE INDI A- NETHERLANDS TREATY ('TREATY'). 4 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 2. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, BY ARTIFICIALLY SPLITTING INCOME FROM STORAGE PRODUCTS INTO THE HARDWARE COMPONENT AND SOFTWARE, AND TAXING THESE INCOME STREAMS SEPARATELY UNDER THE PROVISIONS OF T HE ACT READ WITH THE APPLICABLE PROVISIONS OF THE TREATY. 3. THE LEARNED AO HAS ERRED, IN FACT AND LAW, BY HOLDING THAT THE INCOME FROM THE SALE OF SOFTWARE I S ROYALTY INCOME UNDER ARTICLE12(3) OF THE TREATY AND CONSEQU ENTLY LIABLE TO TAX IN INDIA. 4. THE LEARNED AO HAS ERRED, IN FACT AND LAW, BY HOLDING THAT THE INCOME FROM THE SALE OF SUBSCRIPTI ONS IS ROYALTY INCOME UNDER ARTICLE 12(3) OF THE TREATY AN D CONSEQUENTLY LIABLE TO TAX IN INDIA. 5. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, BY HOLDING THAT THE INCOME FROM THE PROVISION OF THE S ERVICES IS ROYALTY INCOME AND FEES FOR TECHNICAL SERVICES ('FT S') UNDER ARTICLE 12(4) OF THE TREATY AND CONSEQUENTLY LIABLE TAX IN INDIA. 6. THE LEARNED AO HAS ERRED, IN LAW, BY HOLDING TH AT DESPITE PAYMENT OF AN ARM'S LENGTH PRICE TO NETAPP INDIA (THE ALLEGED PE OF THE APPELLANT IN INDIA) FOR THE MARKETING AND SALES SUPPORT SERVICES, ADDITIONAL INCOME RELAT ING TO SUPPLY OF STORAGE PRODUCTS, SUBSCRIPTIONS AND SERVI CES IS ATTRIBUTABLE TO THE ALLEGED PE AND TAXABLE IN INDIA . 7. THE LEARNED AO HAS ERRED, IN LAW, BY HOLDING TH AT INCOME FROM THE SUPPLY OF STORAGE PRODUCTS IS TAXAB LE IN INDIA IN THE ABSENCE OF A PE IN INDIA AND ATTRIBUTI NG 90% OF THE GROSS PROFITS OF NETAPP B.V.FROM THE SALE OF ST ORAGE 5 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT PRODUCTS, TO THE PE IN INDIA, WHILE DISREGARDING TH E INCOME ATTRIBUTION PRINCIPLES UNDER ARTICLE 7 OF THE TREAT Y, READ TOGETHER WITH THE PROTOCOL TO THE TREATY('PROTOCOL' ) AND WELL ESTABLISHED JUDICIAL PRECEDENTS IN THE MATTER. 8. THE LEARNED AO HAS ERRED, IN LAW, BY INVOKING T HE PROVISIONS OF SECTION 44DA TO TAX THE INCOME FROM T HE SALE OF SOFTWARE, SUBSCRIPTIONS AND SERVICES IN INDIA WITHO UT ALLOWING FOR ANY EXPENDITURE INCURRED BY THE APPELL ANT OUTSIDE INDIA AND BY CONSIDERING 100% OF SUCH RECEI PTS AS BEING ATTRIBUTABLE TO THE ALLEGED PE IN INDIA. 9. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, B Y HOLDING THAT THE SALE CONSIDERATION RECEIVED BY THE APPELLANT FROM THE SALE OF NETAPP B.V. PRODUCTS TO NETAPP INDIA MARKETING IS THE BUSINESS INCOME OF THE APPEL LANT AND CONSEQUENTLY LIABLE TO TAX IN INDIA. 10. THE LEARNED AO HAS ERRED IN LAW AND IN FACT, I N LEVYING INTEREST UNDER SECTION 234B OF THE ACT, AMO UNTING TO INR 7,53,38,064 DISREGARDING THE FACT THAT THE ENTI RE INCOME OF NET APP B.V., WHICH HAS BEEN HELD TO BE TAXABLE, WAS SUBJECT TO WITHHOLDING OF TAXES IN INDIA OWING TO W HICH ADVANCE TAX WAS NOT LIABLE TO BE PAID. 11. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, S INCE THE APPELLANT IS NOT LIABLE TO THE ALLEGED PE IN INDIA. 3.0 AT THE OUTSET, THE LD. AUTHORIZED REPRESE NTATIVE (AR) SUBMITTED THAT THE ISSUES RAISED BY THE ASSESSEE BE FORE THIS TRIBUNAL ARE SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY ORDER OF 6 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2010-11. IT WAS SUBMITTED THAT THERE WAS NO CHANGE IN FACTS IN THE PRESENT YEAR AND THAT EVEN THE ASSESSING OFFICER HA S RELIED UPON THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2008-09 AND 2010-11 WHILE MAKING THE IMPUGNED ADDITION. THE LD. AR DREW O UR ATTENTION TO THE RELEVANT PARAGRAPHS OF THE CONSOLIDATED ORDE R OF THIS TRIBUNAL FOR ASSESSMENT YEARS 2008-09 & 2010-11 AND THE FIND INGS RECORDED THEREIN VIS-A-VIS GROUNDS RAISED IN THE PRESENT APP EAL. 4.0 PER CONTRA, THE LD. CIT-DR DID NOT DISPUTE THE FACTUAL POSITION AND RELIED UPON THE ASSESSMENT ORDER. 5.0 WE HAVE CONSIDERED THE FACTS OF THE CASE AND GONE THOUGH THE ORDER PASSED BY THE CO-ORDINATE BENCH OF THIS T RIBUNAL FOR ASSESSMENT YEARS 2008-09 AND 2010-11. WE NOTE THAT GROUND NOS.1,2,6,7 & 8 IN THE CAPTIONED APPEAL RELATED TO THE ISSUE OF PERMANENT ESTABLISHMENT AND ATTRIBUTION OF PROFITS. IT IS SEEN THAT THE ASSESSING OFFICER, WHILE HOLDING THAT THE ASSESS EE COMPANY HAS PERMANENT ESTABLISHED IN INDIA, HAS PRIMARILY RELIE D UPON AND FOLLOWED THE FINDING RECORDED IN ASSESSMENT ORDERS FOR ASSESSMENT 7 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT YEARS 2008-09 AND 2010-11. SINCE, THE APPEALS OF TH E ASSESSEE AGAINST THE SAID ASSESSMENT ORDERS FOR ASSESSMENT Y EARS 2008-09 AND 2010-11 HAVE BEEN DECIDED BY A CO-ORDINATE BENC H OF THIS TRIBUNAL IN THE FAVOR OF THE ASSESSEE IN ITA NOS.47 81/DEL/2013 AND 634/DEL/2014 VIDE ORDER DATED 16.01.2017 BY HOLDING THAT THE ASSESSEE COMPANY DOES NOT HAVE PERMANENT ESTABLISHM ENT IN INDIA IN TERMS OF ARTICLE 5 OF THE INDIA-NETHERLANDS DOUB LE TAXATION AVOIDANCE AGREEMENT (DTAA), WE ARE RESPECTFULLY FOLL OWING THE SAME ON IDENTICAL FACTS AND IDENTICAL REASONING. THE REL EVANT OBSERVATIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL ARE REPROD UCED HEREIN UNDER FOR A READY REFERENCE:- 42. NOW WE PROCEED TO EXAMINE WHETHER THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA WITH RESPECT TO AR TICLE 5 (1) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT. THE FACT R EMAINS THAT APPELLANT NEITHER HAS ANY EMPLOYEES IN INDIAN NOR D OES ITS PERSONAL OR EMPLOYEES VISIT OR IS SECONDED TO INDIA . THE ONLY REASON WHY IT HAS BEEN HELD BY THE LD. ASSESSING OF FICER THAT ASSESSEE HAS A FIXED PLACE PERMANENT ESTABLISHMENT IN INDIA IS MERELY BECAUSE THE EXISTENCE OF A SUBSIDIARY IN IND IA WHICH IS CARRYING ON ITS OWN BUSINESS AS COMMISSION AGENT OF THE APPELLANT. WE ARE OF THE VIEW THAT THERE NEEDS TO B E A CLEAR-CUT DISTINCTION BETWEEN THE BUSINESS OF THE APPELLANT A S WELL AS THE BUSINESS CARRIED ON BY THE INDIAN COMPANY ITSELF FO R ITS OWN PURPOSES. THE INDIAN COMPANY IS MERELY A SERVICE PR OVIDER TO THE APPELLANT AND IT WOULD NOT BE APPROPRIATE HERE TO SAY THAT 8 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT WHERE A PERSON OPT IN SERVICE IN RELATION TO HIS BU SINESS FROM ANOTHER PERSON. THEN THE SERVICE PROVIDER CARRIES O N THE BUSINESS OF THE SERVICES RECIPIENT. AS IT IS STATED THAT THERE IS AN AGREEMENT BETWEEN APPELLANT AND THE INDIAN COMPANY FOR PROVISION OF CERTAIN SERVICES WHICH ARE LISTED IN P ARAGRAPH 3 OF THE COMMISSION AGENT AGREEMENT DATED27/04/2002. ACC ORDING TO THAT AGREEMENT THE INDIAN COMPANY SHALL IN FORM APPELLANT OF ALL THE ORDERS PLACED BY THE CUSTOMERS IMMEDIATELY UPON RECEIPT AND SUCH ORDER SHALL BE ACCEPTED OR REJECTED AT THE SOLE DISCRETION OF THE APPELLANT. IT IS FURTHER SUBMITTE D IN THE AGREEMENT ITSELF THAT INDIAN COMPANY SHALL NOT HAVE ANY AUTHORITY WHATSOEVER TO BIND APPELLANT WITH RESPECT TO ANY OF THE ORDERS RECEIVED. IT WAS ALSO THE OBLIGATION OF THE INDIAN COMPANY THAT IT WILL MAINTAIN A COMPETENT AND FULLY TRAINED ORGANIZATION OF ITSELF. IT WILL PROVIDE A MONTHLY S ALES FORECAST TO THE APPELLANT. AS ASSESSEE IS ENGAGED IN SALE OF SU CH PRODUCTS AND THE INDIAN ENTITY IS A COMMISSION AGENT OF THE APPELLANT THE INDIAN COMPANY SHALL MAINTAIN A REPRESENTATIVE SET OF PRODUCTS FOR DEMONSTRATION PURPOSES ONLY. THE INDIAN COMPANY IS ALSO RESPONSIBLE TO MAINTAIN A RESPONSE MECHANISM PROBAB LY TO ALL THE ENQUIRIES AND REQUEST BY THE CUSTOMER OR POTENT IAL CUSTOMERS RELATING TO THE SALE OF PRODUCTS BY THE A PPELLANT. FOR THE SERVICES THE INDIAN COMPANY WILL BE REMUNERATED A SERVICE FEE AS STATED IN PARAGRAPH NO. 5 OF THAT AGREEMENT. THEREFORE, ON READING OF THE AGREEMENT IT IS APPARENT THAT IND IAN COMPANY IS A SERVICE PROVIDER TO THE APPELLANT AND IT DOES NOT HAVE ANY AUTHORITY TO CONCLUDE ANY CONTRACTS ON BEHALF OF TH E APPELLANT. THE INDIAN COMPANY IS A SEPARATE LEGAL ENTITY UNDEN IABLY, WHICH HAS ITS OWN BOARD OF DIRECTORS PREMISES EMPLO YEES CONTRACTS ETC. AND THE EMPLOYEES OF INDIAN COMPANY WORK UNDER THE CONTROL AND SUPERVISION OF INDIAN COMPANY ONLY AND NOT THE APPELLANT FOR PROVISION OF ITS SERVICES TO THE APPE LLANT. THE LD. ASSESSING OFFICER HAS STATED THAT THE SERVICES PROV IDED BY THE 9 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT INDIAN COMPANY TO THE APPELLANTS CENTRAL AND CORE ACTIVITIES TO HOLD THAT INDIAN ENTITY IS A PERMANENT ESTABLISHMEN T OF THE APPELLANT. THE LD. ASSESSING OFFICER HAS ALSO NOT P UT FORTH ANY EVIDENCE WHICH LEADS TO THE FACT THAT IT IS NOT THE BUSINESS OF THE INDIAN COMPANY THAT IS BEING CARRIED OUT IN INDIA, BUT IT IS THE BUSINESS OF THE APPELLANT BEING CARRIED OUT IN INDI A THROUGH THE INDIAN ENTITY SUCH AS DEPLOYMENT OF THE STAFF BY AP PELLANT TO THE INDIAN COMPANY AND WORKING IN TANDEM WITH THE EMPLO YEES OF THE INDIAN ENTITY FOR EFFECTING SALES IN INDIA. FUR THER THE INDIAN COMPANY IS ALSO REMUNERATED BY THE APPELLANT ON COS T PLUS BASIS. IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON BLE DELHI HIGH COURT IN CASE OF ADOBE SYSTEMS INC. VERSUS ADI T (2016) (69 TAXMANN.COM 228)(DELHI), WHEREIN IT WAS ALSO AL LEGED BY REVENUE THAT THE INDIAN COMPANY IS FUNCTIONING CORE ACTIVITIES OF ADOBE SYSTEMS INCORPORATION, INDIAN COMPANY IS REMU NERATED ON COST PLUS BASIS AND TRANSACTION IS UNDER TAKENAT ARMS LENGTH, IT HAS BEEN HELD AS UNDER:- 32. PARA (1) OF ARTICLE 5 DEFINES A PE TO MEAN A F IXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERP RISE IS WHOLLY OR PARTLY CARRIED ON. THE TERM 'FIXED PLACE OF BUSINESS' INCLUDES PREMISES, FACILITIES, OFFICES WH ICH ARE USED BY AN ENTERPRISE FOR CARRYING ON ITS BUSINESS. THE FIXED PLACE MUST BE AT THE DISPOSAL OF AN ENTERPRIS E THROUGH WHICH IT CARRIES ON ITS BUSINESS WHOLLY OR PARTLY. ALTHOUGH, THE WORD 'THROUGH' HAS BEEN INTERPRETED L IBERALLY BUT THE VERY LEAST, IT INDICATES THAT THE PARTICULA R LOCATION SHOULD BE AT THE DISPOSAL OF AN ASSESSEE FOR IT TO CARRY ON ITS BUSINESS THROUGH IT. THESE ATTRIBUTES OF A PE U NDER ARTICLE 5(1) OF THE INDO-US DTAA WERE ELUCIDATED BY THE SUPREME COURT IN MORGAN STANLEY & CO. LTD. (SUPRA). IN A RECENT DECISION, A DIVISION BENCH OF THIS COURT IN DIT V. E- FUNDS IT SOLUTION [2014]364 ITR 256/226 TAXMAN 44/4 2 10 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT TAXMANN.COM 50 (DELHI) REITERATED THE ABOVE-STATED ATTRIBUTES; AFTER QUOTING FROM VARIOUS AUTHORS, THI S COURT HELD THAT 'THE TERM 'THROUGH' POSTULATES THAT THE T AXPAYER SHOULD HAVE THE POWER OR LIBERTY TO CONTROL THE PLA CE AND, HENCE, THE RIGHT TO DETERMINE THE CONDITIONS ACCORD ING TO ITS NEEDS'. IN THE PRESENT CASE, THERE IS NO ALLEGATION THAT THE ASSESSEE HAS ANY BRANCH OFFICE OR ANY OTHER OFFICE OR ESTABLISHMENT THROUGH WHICH IT IS CARRYING ON ANY BUSINESS OTHER THAN SIMPLY STATING THAT ADOBE INDIA 'S CONSTITUTES THE ASSESSEE'S PE. THERE IS NO EVIDENCE THAT THE ASSESSEE HAS ANY RIGHT TO USE THE PREMISES OR A NY FIXED PLACE AT ITS DISPOSAL. THE AO HAS SIMPLY PROC EEDED ON THE BASIS THAT THE R&D SERVICES PERFORMED BY ADO BE INDIA ARE AN INTEGRAL PART OF THE BUSINESS OF THE A SSESSEE AND THEREFORE, THE OFFICES OF ADOBE INDIA REPRESENT THE ASSESSEE'S FIXED PLACE OF BUSINESS. THUS, CLEARLY T HE RIGHT TO USE TEST OR THE DISPOSAL TEST IS NOT SATISFIED F OR HOLDING THAT THE ASSESSEE HAS A PE IN INDIA IN TERMS OF ART ICLE5(1) OF THE INDO-US DTAA. 33. IN E-FUNDS IT SOLUTION (SUPRA), THIS COURT HAD EXPRESSLY NEGATED THAT AN ASSIGNMENT OR A SUB-CONTR ACT OF ANY WORK TO A SUBSIDIARY IN INDIA COULD BE A FACTOR FOR DETERMINING THE APPLICABILITY OF ARTICLE 5(1) OF TH E INDO-US DTAA. THE COURT HAD FURTHER EXPRESSLY HELD THAT: 'EVEN IF THE FOREIGN ENTITIES HAVE SAVED AND REDUCE D THEIR EXPENDITURE BY TRANSFERRING BUSINESS OR BACK OFFICE OPERATIONS TO THE INDIAN SUBSIDIARY, IT WOULD NOT B Y ITSELF CREATE A FIXED PLACE OR LOCATION PERMANENT ESTABLIS HMENT. THE MANNER AND MODE OF THE PAYMENT OF ROYALTY OR ASSOCIATED TRANSACTIONS IS NOT A TEST WHICH CAN BE APPLIED TO DETERMINE, WHETHER FIXED PLACE PERMANENT 11 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT ESTABLISHMENT EXISTS. REFERENCE TO CORE OF AUXILIAR Y OR PRELIMINARY ACTIVITY IS RELEVANT WHEN WE APPLY PARA GRAPH 3 OF ARTICLE 5 OR WHEN SUB-CLAUSE (A) TO PARAGRAPH 4 TO ARTICLE 5 IS UNDER CONSIDERATION. THE FACT THAT THE SUBSIDIARY COMPANY WAS CARRYING ON CORE ACTIVITIES AS PERFORMED BY THE FOREIGN ASSESSEE DOES NOT CREATE A FIXED PLACE PERMANENT ESTABLISHMENT.' 34. THUS, THE AO'S VIEW THAT ADOBE INDIA CONSTITU TED THE ASSESSEE'S PE IN TERMS OF PARAGRAPH 1 OF ARTICLE 5 OF THE INDO-US DTAA IS PALPABLY ERRONEOUS AND NOT SUSTAINA BLE ON THE BASIS OF THE FACTS AS RECORDED BY HIM. IN THE PRESENT CASE, IT IS BEEN ALLEGED THAT THE TR ANSFER PRICING OFFICER OF THE INDIAN ENTITY HAD MADE AN AD JUSTMENT TO THE MARKETING AND SALES SUPPORT FUNCTION AND APP EAL OF THE INDIAN ENTITY BY THE 1ST APPELLATE AUTHORITY HA S DECIDED AGAINST THE INDIAN ENTITY. THEREFORE IT WAS CONTENDED THAT THE TRANSACTION BETWEEN THE INDIAN E NTITY AND THE APPELLANT ARE NOT AT ARMS LENGTH. THE CONT ENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT NOTWITHSTANDING THE FACT THAT THE LD. 1ST APPELLATE AUTHORITY HAS HELD THAT THE PAYMENTS MADE TO NET AP P INDIA ARE NOT AT ARMS LENGTH, THEY ARE LIABLE TO B E RESOLVED IN PROCEEDINGS OF THE INDIAN ENTITY AND NOT IN THE PROCEEDINGS OF THE APPELLANT. HE THEREFORE RELIED O N THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF ADOBE SYSTEMS INC (SUPRA) WHEREIN IT HAS BEEN HELD THAT E VEN IF THERE IS A DISPUTE IN RELATION TO THIS, IT IS LIABL E TO BE RESOLVED IN PROCEEDINGS RELATING TO THE INDIAN ENTI TY. WE ARE OF THE OPINION THAT TRANSFER-PRICING DISPUTE IN THE ASSESSMENT PROCEEDINGS OF THE INDIAN ENTITY DOES NO T HAVE ANY BEARING ON DETERMINATION OF PERMANENT ESTABLISH MENT 12 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT OF APPELLANT IN INDIA. INDEED, IT IS A MATTER OF DI SPUTE BETWEEN INDIAN REVENUE AUTHORITIES AND THE INDIAN E NTITY ONLY. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN ADOBE SYSTEM INCORPORAT ED (SUPRA), WE REJECT THE CONTENTION OF THE REVENUE TH AT THERE IS A PERMANENT ESTABLISHMENT OF THE APPELLANT IN TE RMS OF ARTICLE 5 (1) OF THE DOUBLE TAXATION AVOIDANCE AGRE EMENT. 43. NOW WE COME TO THE AGENCY PE AND OTHER ASPECTS OF PERMANENT ESTABLISHMENT OF THE APPELLANT. THE MAIN ALLEGATION OF THE LD. ASSESSING OFFICER IS THAT INDIAN ENTITY HAS THE AUTHORITY TO CONCLUDE CONTRACTS BY VIRTUE OF COMMON DIRECTORS WHO ARE ELIGIBLE TO SIGN CONTRACTS ON BEHALF OF FOR EIGN COMPANY AS WELL AS INDIAN AGENT. ON THESE FACTS, IT WAS ALS O CONTENDED BY REVENUE THAT IT CONSTITUTES A PLACE OF MANAGEMEN T FOR THE APPELLANT. IT IS FURTHER CONTENDED THAT INDIAN ENTI TY HAS LOCAL SALES OFFICES IN INDIA. FURTHER, THE WEBSITE OF THE NET GROUP MENTIONS THE INDIAN ENTITY SALES REPRESENTATIVE IN THE SECTIONS WHICH MENTIONS THE OFFICES OF INDIAN ENTITY. IT IS FURTHER CONTENDED THAT NET APP INDIA IS NOT PROVIDING MERE BACK-OFFICE SUPPORT SERVICES, BUT IT IS ENGAGED IN THE CAPACITY BUILDING OF THE GROUP AND APPELLANT. WE ARE OF THE OPINION THAT COM MON DIRECTORS OF THE APPELLANT AND NET APP INDIA. THEY ARE NOT ENGAGED IN THE DAY-TO-DAY ACTIVITIES OF THE APPELLA NT RENEGOTIATION OF ANY CONTRACTS OR PERFORMING ANY MA RKETING FUNCTIONS IN INDIA ON BEHALF OF THE APPELLANT. MERE LY BECAUSE THERE ARE COMMON DIRECTORS IS NOT DETERMINATIVE FAC TOR WHETHER THE NET APP INDIA AS AN AUTHORITY TO CONCLUDE CONTR ACTS ON BEHALF OF APPELLANT. THERE RELIANCE IS APTLY PLACED ON THE DECISION OF THE COORDINATE BENCH IN ITO VERSUS PUBM ATIC INDIA (P.) LTD. (158 TTJ 398) (MUM) WHEREIN IT HAS BEEN H ELD THAT MERELY BECAUSE ONE OF THE DIRECTORS IS COMMON IN BO TH THE COMPANIES DOES NOT CONSTITUTE THE ASSESSEE AS PE. E VEN 13 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT OTHERWISE THE COMMON DIRECTOR AND HOLDING OF THE CO MPANY BY ITSELF DOES NOT CONSTITUTE EITHER COMPANY AS A PERM ANENT ESTABLISHMENT OF THE OTHER AS PER PARA 6 OF ARTICLE 5 OF INDO-US DTAA. WE ALSO DO NOT SEE ANY SUCH PROVISION IN THE DOUBLE TAXATION AVOIDANCE AGREEMENT APPLICABLE IN THIS CAS E. THEREFORE, WE REJECT THAT CONTENTION OF THE REVENUE. THERE IS NO EVIDENCE FOUND BY THE LD. ASSESSING OFFICER DURING THE YEAR THAT INDIAN COMPANY HAS CONCLUDED ANY CONTRACTS ON BEHALF OF AP PELLANT. FOR HOLDING PERMANENT ESTABLISHMENT IN TERMS OF ART ICLE 5 (5) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT, IT IS IMPE RATIVE THAT THE AGENT HAS AND IS HABITUALLY EXERCISING THAT AUT HORITY TO CONCLUDE CONTRACTS ON BEHALF OF APPELLANT. ACCORDIN G TO US, REVENUE HAS FAILED TO ESTABLISH WITH CREDIBLE EVIDE NCE THAT SUCH AUTHORITY IS VESTED IN INDIAN COMPANY AND INDIAN CO MPANY HABITUALLY EXERCISES THAT AUTHORITY. THE CONTRACT P LACED BEFORE US EMPHATICALLY DENIES ANY SUCH AUTHORITY WITH THE AGENT AND FURTHER IN ABSENCE OF ANY EVIDENCE PLACED BEFORE US BY REVENUE, THIS ARGUMENT OF REVENUE DOES NOT FIND SUPPORT FROM US. THEREFORE WE ARE OF THE OPINION THAT ACCORDING TO A RTICLE 5 (5) OF DOUBLE TAXATION AVOIDANCE AGREEMENT, ASSESSEE DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. REGARDING REFEREN CE TO THE WEBSITE OF THE NET APP GROUP THE REFERENCES WITH RE SPECT TO HOW TO BUY AND CONTACT US SECTION WHICH ARE VERY COMMON LOOKING TO THE SERVICES THAT HAS BEEN RENDERED BY INDIAN ENTIT Y TO ITS POTENTIAL CUSTOMERS TO REACH OUT TO THE INDIAN ENTI TY TO DISCUSS PRODUCT FEATURES INFORMATION AND RESPONSE TO THE CA NARIES AS PART OF THE MARKETING SUPPORT FUNCTION ONLY. IT IS PERTINENT TO NOTE HERE THAT THE WEBSITE PAGES UNDER THIS SECTION ALSO REFERRED TO THE LIST OF THE ADDRESSES OF OTHER RESELLERS AND SERVICE PROVIDERS WERE THE PARTIES WHO CONDUCTED SALES PROC ESS AND PERFORM SALES IN INDIA. THEREFORE THIS ARGUMENT OF THE REVENUE ALSO DOES NOT FIND FAVOUR WITH US. ON THE CONTENTIO N OF THAT INDIAN ENTITY CONSTITUTES A PLACE OF MANAGEMENT FOR APPELLANT IS 14 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT DEVOID OF ANY MERIT AS THE LD. AND ASSESSING OFFICE R HAS NOT LED TO ANY EVIDENCE TO ESTABLISH THAT THE APPELLANT DOE S TAKE SIGNIFICANT AND STRATEGIC DECISIONS RELATING TO ITS GLOBAL BUSINESS IN INDIA. IN FACT IT WAS CONTENDED THAT THE BOARD M EETINGS OF THE APPELLANT COMPANY IS HELD OUTSIDE INDIA AND, THEREF ORE, THERE CANNOT BE ANY FIXED PLACE OF PERMANENT ESTABLISHMEN T IN INDIA. THE SUPPORT FOR THIS CONTENTION HAS BEEN CORRECTLY DRAWN BY THE ASSESSEE FROM THE COMMENTARY OF PROF KLAUS VOGEL AN D PARAGRAPH NO. 12 OF THE OECD COMMENTARY ON ARTICLE 5 OF DOUBLE TAXATION AVOIDANCE AGREEMENT. THE ALLEGATION OF REVENUE THAT THE LOCAL SALES OFFICES IN INDIA OF INDIAN ENT ITY ARE BEING USED BY THE APPELLANT AND THEREFORE THERE ARE SALES OUTLETS IN INDIA WHICH FALLS UNDER THE ARTICLE 5 (2)(H) HAS PE RMANENT ESTABLISHMENT. THE TERM SALES OUTLET IS NOT DEFINED IN ANY LEGISLATION. HOWEVER, THE GENERAL MEANING OF THE TE RM IS A PLACE OF BUSINESS FOR RETAILING OF THE GOODS AND TOM OUTL ET IN PARTICULAR IS GENERALLY DEFINED AS A STORE THAT SEL LS THE GOODS OF A PARTICULAR MANUFACTURER OR WHOLESALER. THEREFORE SALES OUTLETS ARE GENERALLY UNDERSTOOD AS A PLACE OF BUSINESS FOR RETAILING OF THE GOODS, FROM WHERE THE GOODS ARE SOLD AND DELIVE RED TO THE CUSTOMERS. NO DOUBT THE INDIAN ENTITY HAS SEVERAL L OCAL OFFICES IN INDIA BUT THESE OFFICES AS STATED BY THE LD. AUT HORIZED REPRESENTATIVE ARE WITH REGARD TO THE MARKETING SUP PORT FUNCTION THAT NET APP INDIA IS REQUIRED TO PROVIDE UNDER THE TERMS OF THE COMMISSION AGENT AGREEMENT WITH THE APPELLANT. ACCO RDING TO HIM THE DISTRIBUTORS UNDERTAKES THE SALES TO THE CU STOMERS, IN THE LOCAL OFFICES OF THE INDIAN ENTITY ARE ONLY PRO VIDING MARKETING SUPPORT FUNCTION AND NOT MAKING SALES OF THE NET AP P PRODUCTS. IN THE WEBSITE OF THE GROUP ALSO THESE ARE THE CONT ACT US PLACES THEREFORE THEY ARE ONLY CONTACT POINTS FOR THE CUST OMERS FOR ENQUIRING ABOUT THE GOODS OF APPELLANT. THEREFORE, THE ACTIVITIES OF INDIAN ENTITY ARE ONLY PART OF ITS MARKETING SUP PORT SERVICES AND ARE FOR THE BUSINESS OF THE INDIAN ENTITY AND C ANNOT BE SAID 15 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT THAT THEY ARE MADE FOR SALES IN INDIA BY THE APPELL ANT THROUGH INDIAN ENTITY. WITH REFERENCE TO THE STORAGE OF THE GOODS FOR THE PURPOSE OF DEMONSTRATION ARTICLE 5 (4) (A) CLEARLY EXCLUDES THAT USE OF FACILITIES SOLELY FOR THE PURPOSE OF STORAGE DISPLAY OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SH ALL NOT CONSTITUTE AS PERMANENT ESTABLISHMENT. THEREFORE ST ORING OF THE GOODS FALLS INTO THE EXCLUSIONARY CLAUSE OF PERMANE NT ESTABLISHMENT. EVEN OTHERWISE, WE DID NOT FIND ANY INSTANCES BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRE SENTATIVE OR IN THE ORDERS OF THE LOWER AUTHORITY WHEN SALES HAS TAKEN PLACE FROM THESE OUTLETS. IN VIEW OF THIS WE DO NOT AGREE WITH THE VIEWS OF THE REVENUE THAT THE LOCAL OFFICES OF THE ASSESSEE ARES ALES OUTLET CONSTITUTING PERMANENT ESTABLISHMENT OF THE APPELLANT. WITH RESPECT TO THE ALLEGATION THAT INDI AN ENTITY IS NOT PROVIDING MERE BACKUP OFFICE SUPPORT SERVICES, BUT ENGAGED IN THE CAPACITY BUILDING OF THE NET APP INDIA GROUP, W E ARE OF THE OPINION THAT INDIAN ENTITY IS CARRYING ON ITS OWN B USINESS AS A SERVICE PROVIDER AND NOT THE BUSINESS OF THE APPELL ANT IS BEING CARRIED OUT BY THE INDIAN ENTITY. MERELY BECAUSE TH ERE ARE CERTAIN TRANSACTIONS BETWEEN THE INDIAN SUBSIDIARY AND THE FOREIGN PARENT, GROUP IT DOES NOT MEAN THAT THE IND IAN SUBSIDIARY CONSTITUTES A PERMANENT ESTABLISHMENT FO R THE FOREIGN PARENT IN INDIA. THIS HAS BEEN CONCLUSIVELY HELD BY THE HONBLE DELHI HIGH COURT IN DIT VERSUS E FUNDS IT S OLUTIONS (SUPRA). 44. WITH RESPECT TO THE AGENCY PE, IT IS ALLEGED BY REVENUE THAT ACTIVITIES OF INDIAN ENTITY ARE NOT ON PRINCIPLE-TO -PRINCIPLE BASIS AS IT IS ALSO DOING FINANCIAL AND ADMINISTRATIVE FU NCTIONS, ALSO REPORTS OF EXPENDITURE INCURRED TO THE APPELLANT AC CORDING TO THE TERMS OF THE COMMISSION AGREEMENT. HOWEVER, WE DO N OT FIND ANY EVIDENCE ON RECORD TO SUPPORT THE ABOVE CONTENT ION AS NO 16 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT EVIDENCE HAS BEEN DRAWN TO OUR ATTENTION THAT THESE FUNCTIONS ARE WITH RESPECT TO THE SALE OF PRODUCTS OR SERVICE S OF THE APPELLANT. ACCORDING TO THE AGREEMENT, THESE FUNCTI ONS ARE WITH RESPECT TO THE MARKETING AND SUPPORT SALES FUNCTION CARRIED ON BY THE INDIAN ENTITY. FURTHER, THE HONBLE DELHI HI GH COURT IN CASE OF ADOBE SYSTEM INCORPORATION (SUPRA) HAS ALSO HELD THAT A PERMANENT ESTABLISHMENT CANNOT BE CONSTITUTED IN IN DIA ONLY ON ACCOUNT OF THE FACT THAT APPELLANT HAS A RIGHT TO A SK FOR THE EXPENDITURE AND INCOME IN TERMS OF THE AGREEMENT BE TWEEN THE PARTIES. THERE MAY BE REASONS FOR DOING SO BECAUSE OF THE COMMERCIAL ASPECT FOR THE PROVISION OF SPECIFICATIO NS, ASSISTANCE, AND SUPERVISION ETC HOWEVER IT CANNOT LEAD TO AN IN FERENCE THAT THE APPELLANT BY EXERCISING THE ABOVE RIGHTS CREATE S ITS PERMANENT ESTABLISHMENT IN INDIA. FOR AN AGENT TO B E OF AN INDEPENDENT STATUS, (1) THE AGENT MUST BE LEGALLY I NDEPENDENT OF THE PRINCIPAL, (2) THE AGENT MUST BE ECONOMICALLY I NDEPENDENT OF THE PRINCIPAL; AND (3) THE AGENT MUST REPRESENT THE PRINCIPAL IN THE ORDINARY COURSE OF BUSINESS. LEGAL INDEPENDENCE OF THE AGENT MUST BE TESTED ON THE LINE OF AGENTS OBLIGAT ION. IN THE PRESENT CASE, THE APPELLANT HAS NOT BROUGHT IT ON R ECORD THAT THE ACTIVITIES OF THE AGENTS ARE SUBJECT TO DETAILED IN STRUCTIONS OR COMPREHENSIVE CONTROL. THE ONLY REASON IS THAT THE COMPANY IS MANAGED BY COMMON DIRECTORS. FURTHER MERE PERSUASIV E CONTROL IS NOT ENOUGH. THIS SOLE FACT IN ABSENCE OF OTHER V ITAL FACTS, WHICH MAY DEPEND ON THE FACTS OF THE EACH CASE, REV ENUE SHOULD ESTABLISH THE COMPREHENSIVE CONTROL OVER THE ENTITY. FURTHER THE INCOME STREAM OF THE ICO ITSELF SUGGEST S THAT ITS REVENUE IS NOT WHOLLY OR SUBSTANTIALLY DERIVED FROM THE ACTIVITIES OF THE APPELLANT BUT FROM OTHER AES ALSO. IT WAS SU BMITTED THAT85% TO 90 % OF THE REVENUE FOR THE YEAR OF ICO IS FROM IT/ ITES SERVICES AND NOT FROM MARKETING SUPPORT SERVIC ES. FURTHER THE RISK MATRIX OF THE ICO IS ALSO NOT BROUGHT ON R ECORD BY THE LD AO. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT ICO IS 17 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT PERFORMING WHOLLY AND EXCLUSIVELY FOR THE ASSESSEE. THEREFORE, IN ABSENCE OF ANY EVIDENCE OF ECONOMIC AND LEGAL DE PENDENCE OF THE AGENT THE ARGUMENT OF REVENUE CANNOT BE SUSTAIN ED. THE INDIAN ENTITY IS LEGALLY AND ECONOMICALLY INDEPENDE NT AND IS COMPENSATED AT ARMS-LENGTH BASIS BY THE APPELLANT IN TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THEM. IT WAS SUB MITTED BEFORE US THAT THE85% OF THE REVENUE OF THE INDIAN ENTITY IS DERIVED FROM IT, ITES SERVICES, AND NOT THE MARKETI NG AND SALES SUPPORT SERVICES. THEREFORE, IT WAS CONTENDED THAT INDIAN ENTITY IS NOT SOLELY RELIANT ON THE APPELLANT IN RELATION TO ITS OPERATION AND IT IS AN INDEPENDENT AGENT AND THEREFORE IT WOU LD NOT CREATE AN AGENCY PE IN INDIA OF THE APPELLANT. THESE FACTS REMAIN UNCONTROVERTED. FURTHERMORE, MERELY BECAUSE THE IND IAN ENTITY PROVIDES SERVICES TO THE NET APP GROUP INCLUDING TH E APPELLANT, IT CANNOT BE SAID THAT PERMANENT ESTABLISHMENT OF THE APPELLANT IS IN INDIA BECAUSE THE PERMANENT ESTABLISHMENT IS REQ UIRED TO BE ESTABLISHED WITH RESPECT TO THE APPELLANT AND NOT T O THE GROUP. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT DRAW OUR ATTENTION TO ANY SUCH PROVISION IN DOUBLE TAXATION AVOIDANCE AGR EEMENT. FURTHER, THE CONTENTION OF THE REVENUE THAT INDIAN ENTITY DISCUSSES ALL TERMS WITH THE DISTRIBUTORS, DISCOUNT TO RESELLERS ARE NEGOTIATED BY NET APP INDIA, DECISION ON SALES ARE ALSO TAKEN BY INDIAN ENTITY IN INDIA, THE INDIAN ENTITY OBTAINS ORDERS FROM CUSTOMERS, PURCHASE ORDERS ARE ROOTED THROUGH INDIAN ENTITY, CUSTOMERS DO NOT MAKE ANY DISTINCTION BETWE EN INDIAN ENTITY AND THE APPELLANT AND FURTHER THAT ALL FUNCT IONS OF THE INDIAN ENTITY ARE NOT CAPTURED IN TRANSFER PRICING DOCUMENTATION PREPARED BY INDIAN ENTITY WHICH DID NOT INCLUDE ASS ETS GIVEN FREE OF COST TO THE INDIAN ENTITY. IT IS FURTHER CO NTENDED THAT THE AGREEMENT WITH THE RESELLERS ARE SIGNED AFTER 40 DA YS AND NET APP INDIA HAS INCURRED EXPENSES ON FREIGHT, SHIPPIN G AND TRANSPORTATION OF THE GOODS AND THEREFORE IT IS ENG AGED IN DELIVERY OF GOODS AND PERFORMING FUNCTIONS OF SALE ON BEHALF OF 18 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT APPELLANT. IT IS FURTHER ALLEGED THAT STORAGE SYSTE MS SOLD BY THE APPELLANT ON BEING REPLACEMENT WARRANTY THE PARTS A RE REPLACED IN MERELY 4 HOURS. THEREFORE, THE INVENTORY IS MAIN TAINED BY APPELLANT IN INDIA AND INDIAN ENTITY IS PERFORMING FUNCTIONS OF MAINTAINING STOCK OF SUCH GOODS FOR SALE. IT WAS FU RTHER ALLEGED BY REVENUE THAT INDIAN ENTITY HAS THE RIGHT TO USE THE TRADEMARKS ETC OF THE APPELLANT AND THEREFORE IS PA YING ROYALTY AND HENCE IT MAKES SALES IN INDIA. WE HAVE CAREFULL Y ANALYZED ALL THE CONTENTIONS OF THE LD. DEPARTMENTAL REPRESE NTATIVE MADE BEFORE US, HOWEVER, WE DO NOT AGREE WITH ANY OF THE M AS NO EVIDENCE HAS BEEN LAID BEFORE US WHICH EVEN REMOTEL Y SUGGEST THAT INDIAN ENTITY DISCUSSES ALL TERMS WITH THE DIS TRIBUTORS, NEGOTIATES DISCOUNTS TO THERE SELLERS AND DECISION ON SALE IS TAKEN BY THE INDIAN ENTITY IN INDIA. WITH RESPECT T O THE PURCHASE ORDERS THE INDIAN ENTITY DO NOT SOLICIT OR ACCEPT P URCHASE ORDERS ON BEHALF OF THE APPELLANT BUT THE PURCHASE ORDERS RAISED ON THE APPELLANT ARE THROUGH DISTRIBUTORS. THE RECEIPT OF THE PURCHASE ORDERS BY THE INDIAN ENTITY IS ONLY FOR FACILITATIO N FOR ONWARD TRANSMISSION TO THE APPELLANT. IN THIS ASPECT, THE REVENUE HAS TOTALLY IGNORED THE FUNCTIONS PERFORMED FOR GETTING PURCHASE ORDERS BY THE DISTRIBUTORS. EVEN OTHERWISE THIS FUN CTION ALONE DO NOT CONSTITUTE PERMANENT ESTABLISHMENT UNDER THE PR OVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT. WITH RESPE CT TO THE ALLEGATION THAT ALL THE FUNCTIONS OF INDIAN ENTITY ARE NOT CAPTURED IN THE TRANSFER PRICING DOCUMENTATION AND ASSETS GI VEN FREE OF COST ARE NOT RECORDED THEREIN, WE ARE OF THE OPINIO N THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF E FUNDS IT SOLUTIONS (SUPRA) WHEREIN IT HAS BEEN HELD THAT EVE N IF THE SOFTWARE OR INTANGIBLE DATA WAS PROVIDED FREE OF CO ST OR OTHERWISE BY THE APPELLANT TO AN INDIAN ENTITY, IT DOES NOT AUTOMATICALLY RESULT IN THE INDIAN ENTITY CONSTITUT ING A PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA. THEREFORE, 19 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT WE REJECT THE CONTENTION OF THE REVENUE ON THIS COU NT. WITH RESPECT TO THE INCURRING OF THE FREIGHT AND TRANSPO RTATION COST INCURRED BY THE INDIAN ENTITY. IT WAS SUBMITTED THA T THESE COSTS ARE INCURRED BY INDIAN ENTITY FOR THE PURPOSE OF TR ANSPORTATION OF DEMO PRODUCTS AND SAMPLES AND OTHER ASSETS OF NET A PP INDIA ONLY AND FURTHER THE TRANSPORTATION COST OF RS. 12 LAKHS PERTAINS TO TRAVELLING AND CONVEYANCE EXPENDITURE. THIS FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US AND EVEN OTHE RWISE; THIS ASPECT ON STANDALONE BASIS DOES NOT GIVE ANY INDICA TION THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT IN INDIA. N O EVIDENCE HAS BEEN BROUGHT ON RECORD BY REVENUE TO SUGGEST TH AT THIS EXPENDITURE IS INCURRED ON IMPORT OF GOODS, WHICH A RE SOLD BY THE APPELLANT. WITH RESPECT TO THE ALLEGATION THAT THE PARTS ARE REPLACED IN 4 HOURS AND THEREFORE INVENTORY IS MAIN TAINED BY INDIAN ENTITY FOR THE PURPOSE OF SALE. IT WAS SUBMI TTED THAT S REQUIRED FOR PERFORMING CERTAIN SERVICES IN INDIA A RE WAREHOUSED BY THIRD-PARTY WAREHOUSING SERVICE PROVIDER IN INDI A AND INDIAN ENTITY DOES NOT DELIVER SPARES ON BEHALF OF APPELLA NT. IT WAS FURTHER SUBMITTED THAT SUCH THIRD PARTY SERVICE PRO VIDER ARE NOT AT THE DISPOSAL OF INDIAN ENTITY OR OF THE APPELLAN T AND ARE INDEPENDENT PARTIES AND THEREFORE THIS FACT CANNOT LEAD TO ANY INDICATION OF THE PERMANENT ESTABLISHMENT OF THE AP PELLANT. WE DO NOT FIND ANY SUCH PROVISION IN THE DOUBLE TAXATI ON AVOIDANCE AGREEMENT EXCEPT WHERE THE PREMISES ARE USED AS SAL ES OUTLET. IN ANY CASE, NO EVIDENCES OR INSTANCES HAVE BEEN LE D THAT THE INDIAN ENTITY IS MAINTAINING ANY STOCK OF GOODS OF THE APPELLANT FOR DELIVERY ON BEHALF OF THE APPELLANT. WITH RESPE CT TO THE ALLEGATION THAT INDIAN ENTITY HAS A CALL CENTRE, IT WAS SUBMITTED THAT THE NET APP GROUP OPERATED CALL CENTERS IN FOU R LOCATIONS ACROSS THE WORLD INCLUDING INDIA AND THE POST SALES SUPPORT SERVICES ARE PROVIDED THROUGH ITS CALL CENTRE TO TH E CUSTOMERS THROUGHOUT THE WORLD .INCOME FROM SUCH CALL CENTRE OPERATIONS ARE PART OF ITES SEGMENT AND ARE CONSIDERED IN THE TRANSFER 20 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT PRICING DOCUMENTATION OF THE INDIAN ENTITY. IT WAS FURTHER CONTENDED THAT WITH RESPECT TO THE SERVICES PROVIDE D BY THE EMPLOYEES OF INDIAN ENTITY THAT SUCH SERVICES ARE A LSO PROVIDED BY OTHER THIRD-PARTY SERVICE PROVIDERS IN INDIA, WH ICH ARE ALSO LISTED ON THE WEBSITE OF THE NET APP GROUP. IT WAS FURTHER STATED THAT NET APP INDIA PROVIDE SUCH SERVICES TO THE APP ELLANTS CUSTOMERS IN INDIA AS PART OF ITS OWN BUSINESS FUNC TIONS IN THE COURSE OF CARRYING ON ITS OWN BUSINESS IN INDIA AND FOR THIS, THE INDIAN ENTITY IS REMUNERATED FOR SUCH SERVICES WHIC H ARE ALREADY BEEN CAPTURED IN THE TRANSFER PRICING DOCUM ENTATION. IT WAS ALSO VEHEMENTLY CONTENDED THAT THE ALLEGATION O F THE REVENUE ABOUT DEPUTATION OF TWO EMPLOYEES FOR RENDE RING TECHNICAL SUPPORT SERVICES IS DEVOID OF ANY MERIT A S THIS FACT WAS DENIED IN THE ASSESSMENT PROCEEDINGS WHERE ENQU IRIES WERE CONDUCTED UNDER SECTION 133 (6 )OF THE INCOME TAX ACT. THE LD DR ALSO COULD NOT SUBSTANTIATE THE ALLEGATION OF DEPUTATION OF ANY EMPLOYEES FOR RENDERING TECHNICAL SUPPORT SERVI CES, IN VIEW OF THIS WE DO NOT AGREE WITH THE REVENUE THAT SERVI CES ARE RENDERED IN INDIA BY DEPUTATION OF EMPLOYEES IN IND IA BY THE APPELLANT. WITH RESPECT TO THE PAYMENT OF ROYALTY, IT WAS SUBMITTED THAT INDIAN ENTITY FROM TIME TO TIME PART ICIPATES IN VARIOUS TRADE FAIRS AND DISSEMINATE INFORMATION ABO UT THE PRODUCTS AND ENGAGED IN PROMOTIONAL ACTIVITY AND FO R THIS PURPOSE, IT HAS RIGHT TO USE THE TRADEMARK WHICH IS NOT HELD BY THE APPELLANT BUT DIFFERENT ENTITY. AS THIS TRANSAC TION IS NOT BETWEEN THE APPELLANT AND THE INDIAN ENTITY WHERE I T IS UNDISPUTED THAT THE TRADEMARKS ARE NOT OWNED BY THE APPELLANT BUT BY DIFFERENT ENTITY, THESE FACTS DOES NOT LEAD TO CREATION OF A PERMANENT ESTABLISHMENT IN INDIA OF APPELLANT. 21 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 5.1 IT REMAINS UNDISPUTED THAT THE FACTS IN THE PRESENT YEAR ARE IDENTICAL TO THE FACTS AS IN ASSESSMENT YEARS 2008- 09 AND 2010-11 AND, THEREFORE, IN ABSENCE OF ANY DISTINGUISHING FE ATURE AND RESPECTFULLY FOLLOWING THE ORDERS OF THE CO-ORDINATE BENCH AS REPRODUCED ABOVE, WE HOLD THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. SINCE, THE QUESTION REGARDING PERMANENT ESTABLISHMENT IS BEING ANSWERED IN FAVOUR OF THE ASSESSEE, THE ISSUE OF ATTRIBUTION OF INCOME IN THE HANDS OF SUCH PERMANENT ESTABLISHMENT BECOMES INFRUTUOUS. ACCORD INGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6.0 GROUND NOS.3 & 4 ARE DIRECTED AGAINST THE TREATMENT OF SOFTWARE AND SALE OF SUBSCRIPTION RECEIPTS AS THE RO YALTY INCOME UNDER ARTICLE 12(3) OF THE INDIA-NETHERLANDS DTAA. THE ASSESSING OFFICER, VIDE PARA 12 OF THE IMPUGNED FINAL ASSESSM ENT ORDER, HAS CONSIDERED THE SUBSCRIPTION REVENUE OF RS.16,43,90, 916/- IN THE NATURE OF ROYALTY AND MADE ADDITION TO THE EXTENT O F RS.14,99,39,032/- IN TERMS OF ARTICLE 7 READ WITH AR TICLE 12 OF THE DTAA. THE LD. AR SUBMITTED THAT THE ASSESSING OFFIC ER HAS 22 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT CONSIDERED THE ADDITION ON THE BASIS OF THE VIEW TAK EN IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2008-09 AND 20 10-11. IT WAS FURTHER SUBMITTED BY THE LD. AR THAT IDENTICAL I SSUE HAD COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESS MENT YEARS 2008-09 AND 2010-11 WHEREIN THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY WH ETHER THE FACTS OF THE CASE WERE IDENTICAL TO THOSE AS DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. REPORTED I N 264 CTR 329 (DELHI). IT WAS ACCORDINGLY SUBMITTED THAT THIS ISSU E ALSO MAY BE SIMILARLY RESTORED AS PER THE ORDER OF THE CO-ORDIN ATE BENCH IN ASSESSMENT YEAR 2008-09 AND 2010-11. 7.0 PER CONTRA, THE LD. CIT-DR RELIED UPON THE ASSESSMENT ORDER. 8.0 HAVING HEARD THE RIVAL SUBMISSIONS AND A FTER HAVING PERUSED THE FINAL ASSESSMENT ORDER, WE FULLY AGREE WITH THE CONTENTIONS OF THE LD. AR THAT THE ADDITION OF SOFT WARE INCOME IS WHOLLY BASED ON THE ASSESSMENT ORDER PASSED FOR ASSE SSMENT YEAR 2008-09. THIS ASSESSMENT ORDER WAS THE SUBJECT MATT ER OF APPEAL 23 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT BEFORE THE CO-ORDINATE BENCH IN ITA NO. 4871/DEL/20 13, WHEREIN AFTER NOTING THE PARITY OF FACTS BETWEEN THE CASE OF THE ASSESSEE AND FACTS INVOLVED IN THE CASE DECIDED BY THE HONBLE D ELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA), THE MATTER WA S RESTORED TO THE ASSESSING OFFICER FOR VERIFICATION. THE RELEVANT OB SERVATIONS OF THIS TRIBUNAL ARE BEING REPRODUCED HEREIN UNDER: 48. GROUND NO. 3 AND 4 OF THE APPEAL OF THE ASS ESSEE ARE AGAINST THE ORDER OF THE LD. ASSESSING OFFICER IN H OLDING THAT INCOME FROM SALE OF SOFTWARE AND INCOME FROM SALE O F SUBSCRIPTIONS IS ROYALTY INCOME UNDER ARTICLE 12 (3 ) OF THE TREATY AND CONSEQUENTLY LIABLE TO TAX IN INDIA. LD. ASSESS ING OFFICER HAS DISCUSSED THE WHOLE GAMUT OF THE TAXATION OF TH E SOFTWARE TAXABLE AS ROYALTY IN PARAGRAPH NO. 6 OF HIS ORDER. BEFORE US, LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT NOW TH E ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF DIRECTOR OF INCOME TAX VERSUS INFRASOFT LTD 264 CTR 329 (DELHI) .HE ALSO SUBMITTED A CHART DURING THE COURSE OF HEARING THAT COMPARES THE SOFTWARE CONSIDERED BY HONBLE DELHI HIGH COURT AND THE FEATURES OF THE SOFTWARE LICENSING AGREEMENT IN THE PRESENT CASE. HE HAS DEMONSTRATED THAT THE ISSUE INVOLVED I S SIMILAR 24 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT STATING VARIOUS ASPECTS OF SOFTWARE LICENSING AGREE MENT AS UNDER: 25 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 49. THE REVENUE IS ALSO NOT SERIOUSLY DISPUTED BEFO RE US THAT THE ISSUE IS NOT COVERED BY THE DECISION OF THE HONBLE DELHI HIGH COURT. HOWEVER THE ISSUE NEEDS TO BE VERIFIED BY TH E LD. ASSESSING OFFICER WHETHER THE LICENSING AGREEMENT I NVOLVED IN THE PRESENT APPEAL IS SIMILAR TO THE ISSUE DECIDED BY THE HONBLE DELHI HIGH COURT. THEREFORE WE SET ASIDE GROUND3 AN D 4 OF THE APPEAL OF THE ASSESSEE BACK TO THE FILE OF THE LD. ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT. IN THE RESULT GROUND NO. 3 AND 4 OF THE APPEAL OF THE ASSESSEE ALLOWED WITH ABOVE DIRECTION . 26 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 8.1 IT IS ALSO PERTINENT TO NOTE THAT THE I SSUE OF SOFTWARE ROYALTY WAS RECENTLY ADJUDICATED BY THE HONBLE APEX COURT I N THE CASE OF ENGINEERING ANALYSIS CENTER OF EXCELLENCE PVT. LTD. VS. CIT (2021) 432 ITR 471 (SC). THE HONBLE APEX COURT, IN ITS DE TAILED JUDGMENT, HAS ANALYZED VARIOUS ASPECTS OF THE ISSUE TAKING IN TO CONSIDERATION END USER LICENSE, COPY RIGHT ACT, AND PROVISIONS CO NTAINED IN DTAA AND THE INCOME TAX ACT AND HAS LAID DOWN THE PARAMET ERS TO TEST WHETHER THE RECEIPT FROM SALE OF SOFTWARE WOULD TANTAM OUNT TO ROYALTY OR NOT. THEREFORE, IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO CARRY OUT THE NECESSARY EXERCISE IN ACCORDANCE WITH THE DIRECTIONS ISSUED BY THE CO-ORDINATE BENCH IN A SSESSMENT YEAR 2008-09 DULY KEEPING IN MIND THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF ENGINEERING ANALYSIS CENT ER OF EXCELLENCE PVT. LTD. VS. CIT (SUPRA) AND ADJUDICATE THE ISSUE ACCORDINGLY AFTER GIVING DUE AND PROPER OPPORTUNITY TO THE ASSESSEE T O PRESENT ITS CASE. THUS, GROUND NOS. 3 & 4 ARE ALLOWED FOR STATI STICAL PURPOSES. 9.0 GROUND NO.5 IS AGAINST THE TAXING OF INCOME FROM PROVISIONS OF SERVICE BY TREATING THE SAME AS FEE F OR TECHNICAL SERVICES. THE ASSESSEE HAS RECEIVED PAYMENT TO THE EXTENT OR 27 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT RS.28,05,48,505/- IN LIEU OF SERVICES RENDERED TO I NDIAN CUSTOMERS. THE SERVICES SO PROVIDED ARE IN THE NATURE OF INSTA LLATION SERVICES, WARRANTY SERVICES, OR PROFESSIONAL SERVICES SUCH AS DATA MIGRATION, DISASTER MANAGEMENT ETC. THESE SERVICES WERE RENDER ED TO THIRD PARTY SERVICE PROVIDERS IN INDIA AND NETAPP IN INDI A. THE ASSESSING OFFICER, ON THE BASIS OF VIEW TAKEN IN ASSESSMENT YE ARS 2008-09 AND 2010-11, HELD THAT THE SERVICES RENDERED BY THE ASSESSEE WERE IN THE NATURE OF ROYALTY /FTS AND WERE, THEREFORE, T AXABLE IN INDIA. THE RECEIPTS TO THE TUNE OF RS.38,34,85,588/- WERE BROUGHT TO TAX U/S 44 DA OF THE ACT. 9.1 THE LD. AR ASSAILED THE ADDITION MADE AND RELIED UPON THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2008-0 9 WHEREIN UNDER IDENTICAL SET OF FACTS, THE ACTION OF THE ASS ESSING OFFICER IN BRINGING TO TAX, THE RECEIPTS FROM SERVICES RENDERE D IN INDIA WAS REJECTED. 10.0 PER CONTRA, THE LD. CIT-DR DID NOT DISPU TE THE FACT THAT IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2008-09. HE FURTHER PLACED RELIANCE ON THE ASS ESSMENT ORDER. 28 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 11.0 WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALSO GONE THROUGH THE FACTS OF THE CASE AS WELL AS THE IMPUGN ED ASSESSMENT ORDER. IT IS UNDISPUTED THAT THE IMPUGNED ADDITION IN THE YEAR UNDER CONSIDERATION IS SOLELY BASED ON THE REASONIN G RECORDED IN ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2008-09 AND 2010-11. SINCE, THE FINDINGS OF THE ASSESSING OFFICER WITH RE GARD TO THIS ISSUE IN 2008-09 & 2010-11 ARE NO LONGER VALID AS HAVING BEEN DISPROVED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE FIND NO REASON TO UPHOLD THE ACTION OF THE ASSESSING OFFICER IN TAXIN G THE IMPUGNED RECEIPTS IN INDIA. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE BEING REPRODUCED HEREIN UNDER:- 52. WE HAVE CAREFULLY CONSIDERED THE RIVAL C ONTENTIONS. THE COMPANY PROVIDES INSTALLATION, INTEGRATION AND TRAI NING ASSISTANCE TO THE INDIAN CUSTOMER IN RELATION TO TH E PRODUCTS SOLD BY IT. THE COMPANY ALSO PROVIDES WARRANTY SERV ICES FOR THE PRODUCTS PURCHASED BY THE CUSTOMERS IN INDIA. FOR A PERIOD OF 3 YEARS AND THE WARRANTIES UNDERTAKEN WITHOUT ANY ADD ITIONAL COST TO THE CUSTOMER AS THE PRIZE OF THE WARRANTIES ALREADY INCLUDED IN THE SALE PRICES. THE COMPANY ALSO OFFER S SUPPLEMENTARY OR AND HENCE WARRANTY PACKAGES FOR A SEPARATE CHARGE. THE WARRANTIES ALSO EXTENDABLE PAYMENT OF A PPELLATE JUDGES BY THE CUSTOMERS. OVER AND ABOVE THIS, IT AL SO PROVIDES PROFESSIONAL SERVICES TO THE CUSTOMERS WHO CAN AVAI L SUCH 29 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT SERVICES SUCH AS DATA MIGRATION, INTEGRATION, DISAS TER RECOVERY OR BACKUP CONFIGURATION ETC. FOR RENDITION OF THE S ERVICES. THE COMPANY HAS ENTERED INTO TECHNICAL SUPPORT SERVICES ARRANGEMENT WITH THIRD-PARTY SERVICE PROVIDERS IN I NDIA AND HAS SIMILAR TECHNICAL SUPPORT ARRANGEMENT WITH INDIAN C OMPANY THROUGH THE SALES SUPPORT AGREEMENT. THE LD. ASSESS ING OFFICER HAS HELD THAT THE SERVICES ARE PREDOMINATELY-TECHNI CAL SERVICES IN THE NATURE AND HAS CONCLUDED THAT IT IS ANCILLAR Y TO THE ROYALTY AND HENCE ROYALTY AS DEFINED IN THE ACT AS WELL AS THE DOUBLE TAXATION AVOIDANCE AGREEMENT AND THEREFORE I T IS CHARGEABLE TO TAX IN INDIA. THE LD. ASSESSING OFFIC ER HAS FURTHER HELD THAT AS THE ASSESSEE IS RENDERING SERVICE THRO UGH QUALIFIED PERSONNEL OF NET APP INDIA OR THIRD-PARTY SERVICE P ROVIDERS IT IS BEING MADE AVAILABLE TO THE INDIAN CUSTOMERS. WE AL SO CAREFULLY CONSIDERED THE DECISION OF THE HONBLE DELHI HIGH C OURT IN CASE OF DIT VERSUS GUY CARPENTER 346 ITR 504 (DELHI), WH EREIN THE HONBLE DELHI HIGH COURT HAS DEALT WITH THE CONCEPT OF MAKE AVAILABLE AS MENTIONED IN THE DOUBLE TAXATION AVOI DANCE AGREEMENT. AS THE SERVICES RENDERED BY THE ASSESSEE ARE INSTALLATION SERVICES, WARRANTY SERVICES AND PROFES SIONAL SERVICES. IT CANNOT BE SAID THAT THEY ARE MADE AVAI LABLE TO THE CUSTOMERS USING NET APP BV PRODUCTS. IN FACT, THE W ARRANTY SERVICE IS TAKEN BY THE BUYER OF THE PRODUCT TO KEE P THE GOODS PURCHASED IN GOOD CONDITION FOR ITS LIFESPAN. WE SI MPLY FAILED TO UNDERSTAND THAT HOW THE INSTALLATION AND WARRANTY S ERVICES AT LEAST CAN BE SAID TO BE MAKE AVAILABLE TO THE BUYER . IN VIEW OF THIS WE REJECT THE ARGUMENT OF THE REVENUE THAT SUC H SERVICES FEES ARE CHARGEABLE TO TAX AS FEES FOR TECHNICAL SE RVICES. IN THE RESULT GROUND NO.5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 30 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT 11.1 THUS, THE CO-ORDINATE BENCH OF THE TR IBUNAL HAS SPECIFICALLY HELD THAT SERVICES PERFORMED BY THE AS SESSEE COMPANY CANNOT BE TAXED IN INDIA IN ABSENCE OF SATISFACTION OF MAKE AVAILABLE CLAUSE. IN ABSENCE OF CHANGE IN FACTS AND KEEPING I N VIEW THE UNIFORMITY IN THE NATURE OF SERVICES, WE FIND NO JUS TIFICATION IN THE ACTION OF THE ASSESSING OFFICER IN BRINGING TO TAX SERVICE RECEIPTS AS FTS AND THE ADDITION SO MADE IS DIRECTED TO BE DELE TED. ACCORDINGLY, GROUND NO.5 STANDS ALLOWED. 12.0 VIDE GROUND NO.9, THE ASSESSEE COMP ANY IS AGGRIEVED BY ADDITION OF RS.40,09,832/- MADE ON ACCOUNT OF SA LE OF PRODUCTS BY THE ASSESSEE COMPANY TO M/S NETAPP INDIA. THE AS SESSING OFFICER, IN PARA 17 OF THE IMPUGNED ORDER, HAS OBSE RVED THAT THE ASSESSEE FAILED TO EXPLAIN WHY THE AMOUNT SO RECEIVE D IS NOT TAXABLE IN INDIA AND THAT NO AGREEMENT, EVIDENCE OR DOCUMEN TS WERE PRODUCED BEFORE HIM TO DEMONSTRATE THE NATURE OF TR ANSACTIONS AND GOODS SOLD. 12.1 THE LD. AR ARGUED THAT THE TRANSACTION IN DISPUTE IS SALE OF COMPUTER EQUIPMENT TO M/S NET APP WHICH WERE USED FOR THE 31 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT PURPOSE OF DEMONSTRATION OF THE ASSESSEE COMPANYS PRODUCTS, WHO WERE INDIAN CUSTOMERS. IT WAS SUBMITTED THAT THE SALE OF EQUIPMENT TOOK PLACE OFF-SHORE AND THAT THERE WAS NO CASE OF A NY INCOME ACCRUING OR ARISING IN INDIA FOR THE PURPOSE OF TAX ATION. 13.0 PER CONTRA, THE LD. CIT-DR ARGUED THAT TH E ASSESSEE HAD FAILED TO SUBSTANTIATE THE NATURE OF TRANSACTION BE FORE THE ASSESSING OFFICER AND, THEREFORE, THE ADDITION HAD BEEN RIGHT LY MADE. 14.0 WE HAVE HEARD THE RIVAL SUBMISSIONS ON T HE ISSUE AND HAVE ALSO GONE THROUGH THE FACTS OF THE CASE. THE A SSESSING OFFICER HAS CONSIDERED THE INCOME FROM THE SALE OF EQUIPMEN T AS BUSINESS INCOME TAXABLE IN INDIA. HOWEVER, IT IS WORTHWHILE TO KNOW THAT AS PER ARTICLE 7 OF THE INDIA-NETHERLAND DTAA, THE BUS INESS INCOME EARNED BY A RESIDENT OF A STATE FROM BUSINESS CARRI ED IN ANOTHER STATE IS TAXABLE ONLY IN THE RESIDENT STATE UNLESS SUCH BUSINESS IS CARRIED IN OTHER STATE THROUGH PE. IN THE PRESENT C ASE, WE HAVE ALREADY HELD THAT THE ASSESSEE COMPANY DOES NOT HAV E A PERMANENT ESTABLISHMENT IN INDIA AND AS SUCH THE BUSINESS INC OME SO ARISING ON SALE OF EQUIPMENT CANNOT BE TAXED IN INDIA AS PE R THE EXPRESS 32 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT PROVISION OF ARTICLE 7 OF DTAA. ACCORDINGLY, THE AS SESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF BUSINESS INCOME. THIS GROUND IS ACCORDINGLY ALLOWED. 15.0 GROUND NO.10 IS REGARDING CHARGING TO INTEREST U/S 234B OF THE ACT. THIS ISSUE OF CHARGEABILITY OF INTEREST IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION THAT IN CASE THE ASSESSEE HAS ANY INCOME CHARGEABLE TO TAX IN INDIA AND IF THE SAME IS SUBJECT TO WITHHOLDING TO TAX, NO INTEREST U/S 23 4B SHOULD BE CHARGED. GROUND NO.10 ACCORDINGLY IS ALLOWED. 16.0 GROUND NO.11 IS AGAINST THE INITIATI ON OF PENALTY PROCEEDINGS U/S 271(C) OF THE ACT. THE SAME IS DISM ISSED AS PREMATURE. 17.0 IN THE FINAL RESULT, THE APPEAL OF T HE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 20 TH SEPTEMBER, 2021. SD/- SD/- (N. K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20/09/2021 PK/PS 33 ITA N.1882 /DEL/2017 NET APP B.V VS. DCIT COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT DEHRADUN