ZTE Corporation, Gurgaon V. DCIT (International Taxation), Gurgaon

ITA 1930/DEL/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2047 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 07-12-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR PRABHA KANT
• Keywords: Business income; Double taxation relief; Application of stay; Permanent establishment; Advance ruling; Tax effect; Condonation of delay
• Section: 133A; 201; 274; 13; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.1930/DEL/2020 (ASSESSMENT YEAR 201 7-18) M/S ZTE CORPORATION ZTE PLAZA KEJI ROAD SOUTH HI-TECH INDUSTRIAL PARK, NANSHAN DISTRICT, SHENZHEN, P R CHINA. PAN-AAACZ 4115A VS. DY. CIT (INTERNATIONAL TAXATION), GURGAON. (APPELLANT) (RESPONDENT) SA NO.364/DEL/2020 (ARISING OUT OF ITA NO.1930/DEL/2020) (ASSESSMENT YEAR 2017- 18) M/S ZTE CORPORATION 6 TH FLOOR, RMZ INFINITY TOWER, PLOT NO.15, UDYOG VIHAR, PHASE-IV, GURGAON (HARYANA) PAN-AAACZ 4115A VS. DY. CIT (INTERNATIONAL TAXATION), GURGAON. (APPELLANT) (RESPONDENT) 2 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. I.T.A NO.8185/DEL/2019 (ASSESSMENT YEAR 20 16-17) DY. CIT (INTERNATIONAL TAXATION), CIRCLE GURUGRAM. VS. M/S ZTE CORPORATION ZTE PLAZA KEJI ROAD SOUTH HI-TECH INDUSTRIAL PARK, NANSHAN DISTRICT, SHENZHEN, P R CHINA. PAN-AAACZ 4115A (APPELLANT) (RESPONDENT) C.O. NO.07/DEL/2021 (ARISING OUT OF ITA NO.8185/DEL/2019) (ASSESSMENT YEAR 2016- 17) M/S ZTE CORPORATION ZTE PLAZA KEJI ROAD SOUTH HI-TECH INDUSTRIAL PARK, NANSHAN DISTRICT, SHENZHEN, P R CHINA. PAN-AAACZ 4115A VS. DY. CIT (INTERNATIONAL TAXATION), GURGAON (CROSS OBJECTOR) (RESPONDENT) I.T.A NO.1474/DEL/2020 (ASSESSMENT YEAR 201 6-17) M/S ZTE CORPORATION ZTE PLAZA KEJI ROAD SOUTH HI-TECH INDUSTRIAL PARK, NANSHAN DISTRICT, SHENZHEN, P R CHINA. PAN-AAACZ 4115A VS. JT. CIT (OSD), (INTERNATIONAL TAXATION), CIRCLE GURUGRAM (APPELLANT) (RESPONDENT) 3 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. APPELLANT BY SH. HARPREET AJMANI, ADV. MRS. ANANYA KAPOOR, ADV. SH. ROHAN KHARE, ADV. RESPONDENT BY DR. PRABHA KANT, CIT-DR DATE OF HEARING 25.05.2021 DATE OF PRONOUNCEMENT 30.06.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: 1. ASSESSEE AND DEPARTMENT HAVE FILED CROSS-APPEALS F OR ASSESSMENT YEAR 2016-17, ITA NO. 1474/DEL/2020 IS T HE APPEAL OF THE ASSESSEEAND ITA NO. 8185/DEL/2019 IS THE APPEAL OF THE DEPARTMENT AGAINST THE ORDER DATED 20.08.201 9IN APPEAL NO. 10239/2018-19PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS).ALSO, IN THE SAID DEPARTMENT'S APPEAL FOR ASSESSMENT YEAR 2016-17, C.O. NO. 7/DEL/2021 HAS BEEN FILED BY THE ASSESSEE. WHEREAS, ITA NO.1930/DEL/2020 IS THE ASSE SSEE'S APPEAL AGAINST THE FINAL ASSESSMENT ORDER DATED 06. 11.2020 PASSED IN PURSUANCE TO THE DIRECTIONS OF THE LD. DI SPUTE RESOLUTION PANEL ('DRP') VIDE DIRECTIONS DATED 14.0 9.2020FOR 4 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. THE ASSESSMENT YEAR 2017-18. SINCE THESE APPEALS AN D CROSS- OBJECTION PERTAIN TO SAME ASSESSEE INVOLVING COMMON GRIEVANCES AND WERE HEARD TOGETHER, WE ARE DISPOSING THEM OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AN D BREVITY. THE ASSESSEE HAS ALSO FILED STAY APPLICATION FOR AS SESSMENT YEAR 2017-18. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS A TAX RESIDENT OF REPUBLIC OF CHINA AND IS ENGAGED IN THE BUSINESS OF PROVIDING TELECOM SOLUTIONS. IT PROVIDE S A WIDE ARRAY OF TELECOMMUNICATIONS PRODUCT LINE IN THE WORLD, CO VERING VERTICAL SECTOR OR WIRELESS NETWORKS, CORE NETWORKS, ACCESS & BEARER NETWORKS, SERVICES AND TERMINALS MARKETS. DU RING THE ASSESSMENT YEAR/S ('A.Y.') 2016-17 AND 2017-18, THE ASSESSEE WAS ENGAGED IN SUPPLY OF TELECOMMUNICATION EQUIPMENT NETWORK EQUIPMENT, TERMINAL EQUIPMENT (HANDSETS) AND SOFTWARE TO INDIAN TELECOM OPERATORS. WHEREAS, THE I NDIAN SUBSIDIARY OF THE ASSESSEE, I.E., ZTE TELECOM INDIA PRIVATE 5 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. LIMITED, WAS ENGAGED IN INSTALLATION, COMMISSIONING AND TESTING OF THE EQUIPMENT IN INDIA WHICH ARE SUPPLIED BY THE ASSESSEE. 3. IN BOTH THE YEARS UNDER CONSIDERATION, I.E., A.Y. 2 016-17 AND A.Y. 2017-18, SHOW-CAUSE NOTICE WAS ISSUED BY THE AS SESSING OFFICER WHILST RELYING ON SURVEY UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 (ACT) CONDUCTED ON 06.10.200 9,IN THE OFFICE PREMISES OF ZTE TELECOM INDIA PRIVATE LIMITE D [AT 6TH FLOOR, TOWER-B, BUILDING NO. 10 PHASE-II, GURGAON, HARYANA AND IN NEW MUMBAI, THANE]. AS PER THE ASSESSING OFFI CER, DURING THE COURSE OF SURVEY PROCEEDINGS, SEVERAL IN CRIMINATING DOCUMENTS WERE FOUND AND INVENTORISED. STATEMENTS O F VARIOUS SENIOR EXECUTIVES WERE ALSO RECORDED. THE SAID DOCU MENTS LEAD THE ASSESSING OFFICER/S TO BELIEVE THAT THE ASSESSE E HAS A BUSINESS CONNECTION IN INDIA AND THE BUSINESS HAS B EEN CARRIED OUT THROUGH ITS PERMANENT ESTABLISHMENT IN INDIA. D URING THE RELEVANT YEAR/S ALSO, ASSESSING OFFICER RELIED ON T HE SURVEY PROCEEDINGS AND EARLIER YEAR/S ASSESSMENT ORDERS FO R A.Y. 2004-05 TO A.Y. 2015-16. 6 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 4. SINCE ALL THE APPEALS AND CROSS OBJECTION PERTAIN T O THE SAME ASSESSEE INVOLVING COMMON GRIEVANCES, WE WILL ADJUDI CATE THE SAME TOGETHER. 5. AT THE VERY OUTSET, WE NOTE THAT THERE IS A DELAY OF 274 DAYS IN FILING OF APPEAL BY THE ASSESSEE FOR AY 2016-17. TH E ASSESSEE HAD PREFERRED AN APPLICATION FOR CONDONATION OF DEL AY WHEREIN IT HAS BEEN STATED THAT THE ORDER OF THE CIT (A) DATED 20.08.2019 WAS RECEIVED BY THE ASSESSEE ON THE COMMUNICATION AD DRESS ON 09.09.2019. IN PARAGRAPH 11 AND 12 OF THE APPLICATI ON FOR CONDONATION OF DELAY IT IS SUBMITTED THAT IMMEDIATE LY AFTER GETTING THE INFORMATION REGARDING THE ORDER BEING P ASSED BY THE CIT(A), THE ASSESSEE DECIDED TO FILE AN APPEAL BEFO RE THE TRIBUNAL AND DESIGNATED MR. CHENG YU XIANG, AN AUTH ORISED SIGNATORY TO COORDINATE IN DRAFTING AND FILING OF A PPEAL IN INDIA. MR. CHENG EARLIER HAD VISITED INDIA FOR FACILITATIN G IN FOLLOW-UP WITH CLIENTS ON OUTSTANDING PAYMENTS. OWING TO VISA R ELATED ISSUES, TRAVEL OF MR. CHENG WAS DELAYED AND HE COULD VISIT INDIA 7 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. ONLY ON 11.11.2019. AFTER VISITING INDIA, ON ACCOUN T OF PRIOR COMMITMENTS DUE TO FACILITATING IN FOLLOW-UP ON OUT STANDING PAYMENTS, MR. CHENG INADVERTENTLY MISSED TO TAKE NE CESSARY STEPS FOR FILING THE APPEAL AND HE ALSO DID NOT INF ORM THE OTHER CONCERNED PERSONS REGARDING NON-FILING OF THE APPEA L. THEREAFTER, MR. CHENG LEFT INDIA ON 09.12.2019. SUB SEQUENTLY, MR. CHENG VISITED INDIA BETWEEN 15.12.2019 TO 29.12 .2019 HOWEVER, EVEN DURING THIS PERIOD HE INADVERTENTLY M ISSED TO TAKE NECESSARY STEPS FOR FILING OF APPEAL AND ALSO DID NOT INFORMTHE OTHER CONCERNED PERSONS IN THIS REGARD. T HEREAFTER, MR. CHENG WAS RELOCATED AND SENT ON DEPUTATION TO VI ETNAM. AFTERWARDS, OWING TO THE UNPRECEDENTED OUTBREAK OF TH E PANDEMIC IN CHINA, FOLLOW UP OF THE APPEAL COULD NOT HAPPEN AND IT WAS ONLY ONCE THE LEGAL DEPARTMENT OF THE ASS ESSEE WAS UPDATING THE STATUS OF THE PENDING LITIGATION WAS WHE N THE SAID OMISSIONIN FILING APPEAL WAS DISCOVERED. THE LD. AR HAS ARGUED THAT THE DELAY IN FILING OF APPEAL IS BONA FIDE AND THE ISSUES IN QUESTION HAVE CONTINUOUSLY BEEN AGITATED BY THE ASS ESSEE 8 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. BEFORE VARIOUS FORUMS INCLUDING THE HON'BLE HIGH CO URT OF DELHI FOR THE PRECEDING YEARS VIZ. A.Y. 2004-05 TO A.Y. 2 015-16, WHERE ON THE ISSUE OF ATTRIBUTION, SUBSTANTIAL QUESTION O F LAW HAS ALSO BEEN FRAMED IN ASSESSEE'S APPEAL/S AND ARE PENDING CONSIDERATION. IT IS ARGUED THAT THERE WAS NO QUESTI ON OF NOT PREFERRING AN APPEAL FOR AY 2016-17, HAD IT NOT BEE N FOR THE INADVERTENT ERROR. THE ASSESSEE HAS ALSO FURNISHED AN AFFIDAVIT ALONG WITH THE APPLICATION FOR CONDONATION OF DELAY TO THE SAME EFFECT. 6. OUR ATTENTION WAS ALSO DRAWN TO PARAGRAPH 14 OF THE APPLICATION FOR CONDONATION OF DELAY WHEREIN RELIANC E HAS BEEN PLACED ON ORDER DATED 23.03.2020 PASSED BY THE HON' BLE SUPREME COURT IN SUO MOTO W.P. (C) NO. 3 OF 2020, WHILST ACKNOWLEDGING THESE UNPRECEDENTED TIMES IN EXERCISE OF ITS JURISDICTION UNDER ARTICLE 142 READ WITH ARTICLE 141 OF THE CONSTITUTION OF INDIA, ON ITS OWN MOTION HAD EXTEND ED ALL STATUTORY LIMITATIONS FOR FILING BEFORE COURT / TRI BUNAL W.E.F. 15.03.2020.WHILE REFERRING TO SECTION 253(5) OF THE ACT AND THE 9 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. DECISION OF HON'BLE SUPREME COURT IN COLLECTOR, LAN D ACQUISITION, ANANTNAG V MST. KATIJI, (1987) 2 SCC 1 07. THE LD. AR SUBMITTED THAT IN THE PRESENT FACTS SUFFICIENT C AUSE HAS BEEN EXPLAINED TO CONDONE THE BONA FIDE DELAY. 7. ALTERNATIVELY, THE LD. AR ARGUED THAT THE ASSESSEE HAS ALSO PREFERRED CROSS-OBJECTIONS IN DEPARTMENT'S APPEAL F OR A.Y. 2016-17, WHICH IS IN LINE WITH THE GROUNDS AGITATED I N THE ASSESSEE'S APPEAL AND THUS, CONSIDERING THAT THE CR OSS- OBJECTIONS HAVE BEEN FILED WITHIN LIMITATION, EVEN O THERWISE THE MATTER REQUIRES ADJUDICATION ON MERITS. 8. ON THE OTHER HAND, THE LD. DR HAS OPPOSED THE CONDO NATION OF DELAY AND ADJUDICATION OF APPEAL FOR AY 2016-17 ON MERITS. 9. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES A ND ARE OF THE CONSIDERED OPINION THAT THERE IS A BONA FIDE JUSTIFICATION FOR THE DELAY IN FILING APPEAL AND NO CONTRARY MATERIAL HAS BEEN BROUGHT ON RECORD BY THE DEPARTMENT TO REFUTE THAT THE AVERMENTS IN THE CONDONATION APPLICATION WHICH IS SU PPORTED BY AN AFFIDAVIT ARE FALSE, THUS, TO ADVANCE SUBSTAN TIAL JUSTICE 10 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. THE DELAY IN FILING OF ASSESSEE'S APPEAL FOR AY 201 6-17 IS CONDONED. WE EVEN FIND FORCE IN THE ALTERNATIVE SUB MISSION OF THE LD. AR THAT THE CROSS-OBJECTIONS INVOLVE IDENTI CAL GROUNDS AS THE APPEAL AND EITHER WAYS THE MATTER REQUIRES CO NSIDERATION ON MERITS. A BONA FIDE LITIGANT SHOULD NOT SUFFER MERELY ON ACCOUNT OF AN INADVERTENT OMISSION ON THE PART OF I TS EMPLOYEE / AGENT. OUR VIEW IS FORTIFIED BY THE DECISION OF H ON'BLE SUPREME COURT IN COLLECTOR, LAND ACQUISITION, ANANTNAG V MS T. KATIJI, (1987) 2 SCC 107WHEREIN THE GUIDELINES TO BE CONSIDE RED FOR 'CONDONATION OF DELAY' HAS BEEN SUCCINCTLY EXPLAINE D BY OBSERVING AS FOLLOWS: '3. .THE EXPRESSION SUFFICIENT CAUSE EMPLOYED BY THE LEGISLATURE IS ADEQUATELY ELASTIC TO ENABLE THE COU RTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUBSERVES THE ENDS OF JUSTICE THAT BEING THE LIFE-PURPOSE FOR THE EXIST ENCE OF THE INSTITUTION OF COURTS. IT IS COMMON KNOWLEDGE THAT THIS COURT HAS BEEN MAKING A JUSTIFIABLY LIBERAL APPROACH IN M ATTERS INSTITUTED IN THIS COURT. BUT THE MESSAGE DOES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHER COURTS IN THE HIERARCHY. AND SUCH A LIBERAL APPROACH IS ADOPTED ON PRINCIPLE AS IT IS REALIZED THAT: 1. ORDINARILY A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 11 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 2. REFUSING TO CONDONE DELAY CAN RESULT IN A MERITO RIOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND C AUSE OF JUSTICE BEING DEFEATED. AS AGAINST THIS WHEN DEL AY IS CONDONED THE HIGHEST THAT CAN HAPPEN IS THAT A CAUS E WOULD BE DECIDED ON MERITS AFTER HEARING THE PARTIE S. 3. EVERY DAY'S DELAY MUST BE EXPLAINED DOES NOT M EAN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EVERY HOUR'S DELAY, EVERY SECOND'S DELAY? THE DOCTR INE MUST BE APPLIED IN A RATIONAL COMMON SENSE PRAGMATI C MANNER. 4. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERA TIONS ARE PITTED AGAINST EACH OTHER, CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED FOR THE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DELAY. 5. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT HE RUNS A SERIOUS RI SK. 6. IT MUST BE GRASPED THAT JUDICIARY IS RESPECTED N OT ON ACCOUNT OF ITS POWER TO LEGALIZE INJUSTICE ON TECHN ICAL GROUNDS BUT BECAUSE IT IS CAPABLE OF REMOVING INJUS TICE AND IS EXPECTED TO DO SO.' 10. AS WE HAVE CONDONED THE DELAY IN FILING OF APPEAL F OR AY 2016- 17, TO AVOID DUPLICATION, THE CROSS-OBJECTION FILED BY THE ASSESSEE IN DEPARTMENT'S APPEAL ON IDENTICAL GROUND S IS TREATED AS ACADEMIC AND DISPOSED OFF ACCORDINGLY. 12 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 11. HAVING HELD THE ABOVE, WE NOW EMBARK ON THE MERITS O F THE MATTER AND TAKE UP APPEALS FOR AY 2016-17 AND AY 20 17-18. 12. THE FIRST COMMON GRIEVANCE IN ASSESSEES APPEAL FOR AY 2016- 17 (GROUND NO. 1 TO 4) AND ASSESSEE'S APPEAL FOR AY 2017-18 (GROUND NO. 1 TO 7) RELATES TO THE EXISTENCE OF PER MANENT ESTABLISHMENT ('PE')OF THE ASSESSEE IN INDIA. 13. AT THE VERY OUTSET, THE LD. AR SUBMITTED THAT HE HA S INSTRUCTIONS FROM HIS CLIENT TO SUBMIT THAT TO AVOI D PROTRACTED LITIGATION THE GROUNDS OF APPEAL DEALING WITH THE PR OFUSELY LITIGATED ISSUE OF EXISTENCE OF A PE ARE NOT PRESSE D. WHEREAS, THE LD. DR HAS RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 14. WE NOTE THAT A SIMILAR CONCESSION WAS GIVEN BY ASSES SEE BEFORE THE TRIBUNAL IN THE PRECEDING YEARS I.E. AY 2004-05 TO AY 2009- 10 AS WELL AS AY 2010-11 TO AY 2015-16. THE CO-ORDI NATE BENCH IN ASSESSEE'S OWN CASE IN ITA NO. 2805/DEL/2016 [AY 2010- 11]AT PARAGRAPH 4 AND 5 INCOMMON JUDGMENT DATED 15. 02.2019 FOR AY 2010-11 TO AY 2015-16 HAS RECORDED THAT:- 13 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. '4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GI VEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHO RITIES BELOW QUA THE ISSUE. WE FIND THAT IN ASSESSMENT YEA RS 2004- 05 TO 2009-10, WHEN THIS ISSUE WAS AGITATED BEFORE THE TRIBUNAL, THE TRIBUNAL IN ITA NO. 5870/DEL/2012 AT PARA 13 OF ITS ORDER OBSERVED AS UNDER: AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE HAS INSTRUCTIONS FROM HIS CLIENTS THAT THE DISPUTE BETWEEN THE ASSESSEE AND THE DEPARTMENT MAY BE SETTLED, AND THEREFORE ON THE MOST CONTENTIO US ISSUE REGARDING EXISTENCE OF PE IN INDIA,HE HAS INSTRUCTIONS NOT TO PRESS THE SAME. 5. THIS GROUND WAS ACCORDINGLY NOT CONSIDERED BY TH E TRIBUNAL IN EARLIER ASSESSMENT YEARS. SINCE DURING THE CAPTIONED ASSESSMENT YEARS BEFORE US THE LD. COUNSE L FOR THE ASSESSEE HAS MADE A SIMILAR CONCESSION AND ON SUCH CONCESSION, WE DECLINE TO DWELL INTO THIS ISSUE.' 15. HENCE, RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH, WE TOO DECLINE TO DWELL INTO THIS ISSUE OF EXISTENCE OF PE AND THE RELEVANT GROUNDS ARE DISPOSED OFF ACCORDINGLY. 16. THE NEXT ISSUE RAISED IN ASSESSEE'S APPEAL FOR AY 2 016-17 [GROUNDS NO. 5 TO 10] AND ASSESSEES APPEAL FOR AY 2017-18 [GROUND NO. 8 TO 12] RELATES TO THE ATTRIBUTION OF PROFIT. 14 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 17. THE LD.AR SUBMITTED THAT THE ACTIVITIES RELATABLE T O INDIA AND RATE OF ATTRIBUTION TO BE APPLIED IN RELATION TO SU CH ACTIVITIES UNDERTAKEN HAS BEEN ADJUDICATED BY THIS HON'BLE TRI BUNAL IN ASSESSEE'S OWN CASE VIDE COMMON JUDGMENT FOR AY 2004 -05 TO AY 2009-10 AND AY 2010-11 TO AY 2015-16. HE FURTHER SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED THE SAID DECISION/S OF TRIBUNAL AND ACCORDINGLY, ON THIS ISS UE, NO FURTHER APPEAL HAS BEEN FILED BEFORE THE HIGH COURT ON EITHER THE ISSUE OF ACTIVITIES IDENTIFIED OR THE METHOD / RATE OF ATTRIBUTION TO BE APPLIED QUA SUCH ACTIVITIES. IN THIS REGARD, HE SUBMITTED THAT THE FINAL ASSESSMENT ORDER/S FOR AY 2016-17 AND AY 2017-18 ARE CONSISTENT WITH THE ORDER OF TRIB UNAL AND ATTRIBUTION RATE OF 35% HAS BEEN APPLIED. 18. THE LD. AR DREW OUR ATTENTION TO PARA 50 OF THE COMM ON JUDGMENT DATED 30.05.2016 FOR AY 2004-05 TO AY 2009 -10 IN ASSESSEE'S OWN CASE, WHEREIN WHILST CONSIDERING THE L EVEL OF OPERATIONS CARRIED OUT BY THE ASSESSEE THROUGH ITS PE IN INDIA IT 15 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. WAS CONCLUDED THAT ALMOST ENTIRE SALES FUNCTIONS INC LUDING MARKETING, BANKING AND AFTER SALES WERE CARRIED OUT BY THE PE IN INDIA. HE ARGUED THAT IN TERMS OF THE AVAILABLE JUDICIAL PRECEDENTS NONE OF THE ACTIVITIES IDENTIFIED IN REL ATION TO THE PE ARE REVENUE GENERATING AND THUS, NO PORTION OF INCO ME QUA SUCH ACTIVITIES OUGHT TO BE TAXED IN INDIA. HE ALSO ARGUED THAT THE ACTIVITIES IDENTIFIED BY THE ASSESSING OFFICER VIZ. NEGOTIATION OR PLACE OF SIGNING OF CONTRACT OR FORMAL ACCEPTANC E OF CONTRACT OR GENERAL SUPERVISION BEING UNDERTAKEN BY THE ASSE SSEE ARE IRRELEVANT FACTORS, AS THESE ARE MERELY INCIDENTAL IN NATURE. WHEN THE MAIN BUSINESS OF THE ASSESSEE IS DIFFERENT , THE INCIDENTAL ACTIVITIES WHICH ARE ONLY TO AID AND SUPP ORT THE MAIN ACTIVITY WOULD FALL UNDER EXCLUSIONARY CLAUSE OF DTA A (INDIA- CHINA) BEING PREPARATORY AND AUXILIARY IN CHARACTER . HE FURTHER ARGUED THAT CONSIDERING THAT THE TRANSACTION/S BETW EEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY I.E., ZTE TELECO M INDIA PRIVATE LIMITED HAVE ALREADY BEEN SUBJECTED TO TRAN SFER PRICING, NO FURTHER ATTRIBUTION IS JUSTIFIED. 16 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 19. ALTERNATIVELY, ON A WITHOUT PREJUDICE BASIS THE LD. AR ALSO ARGUED THAT CONSIDERING THE ACTIVITIES IDENTIFIED I N RELATION TO THE PE, THE RATE OF ATTRIBUTION OF 35% IS FAR TOO H IGH AND OUGHT TO HAVE BEEN RESTRICTED TO ATTRIBUTION RATE OF 20% AS ORIGINALLY APPLIED BY THE ASSESSING OFFICER DURING AY 2004-05 TO AY 2008- 09 OR A LESSER RATE IN TERMS OF THE ACTIVITIES BEIN G SUBSEQUENTLY RESTRICTED BY THE TRIBUNAL, WHICH IS ALSO IN LINE WIT H THE AVAILABLE JUDICIAL PRECEDENTS. HE ARGUED THAT IN TH E COMMON JUDGMENT DATED 30.05.2016 FOR AY 2004-05 TO AY 2009 -10, MUCH EMPHASIS HAS BEEN PLACED ON DECISION OF CO-ORD INATE BENCH IN THE CASE OF NORTEL NETWORKS INDIA INTERNAT IONAL INC. JUDGMENT DATED 13.06.2014 IN ITA NOS. 1119, 1120 & 1121/2010(ASSESSEES APPEALS) & ITA NOS. 1153, 1154 & 1155/DEL/2010 (DEPARTMENTS APPEAL), WHEREIN ATTRIBU TION RATE OF 50% WAS APPLIED. HOWEVER, CONSIDERING THAT NOW THE SAID DECISION OF TRIBUNAL IN NORTEL NETWORKS ( SUPRA ) HAS BEEN OVERRULED BY THE HON'BLE DELHI HIGH COURT IN NORTEL NETWORKS INDIA INTERNATIONAL INC. V. DIT (2016) 69 TAXMANN.C OM 47 17 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. (DELHI), THUS, EVEN ON THIS BASIS THE HIGHER RATE O F ATTRIBUTION IS NOT JUSTIFIED. 20. THE LD. AR SUBMITTED THAT FOR THE AY 2017-18 THE DE PARTMENT HAS APPLIED OPERATING PROFITABILITY OF 2.41% AS AGA INST THE NET GLOBAL OPERATING PROFITABILITY OF (-1.91)% AS MANDA TED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE VIDE COMMON JUDGMENT FOR AY 2004-05 TO AY 2009-10 AND AY 2010-11 TO AY 2015-16. 21. AT THIS JUNCTURE, THE LD. AR FAIRLY SUBMITTED THAT THE LEGAL ISSUE ON ATTRIBUTION OF PROFIT IS SUB-JUDICE BEFORE THE HON'BLE DELHI HIGH COURT IN ASSESSEE'S APPEAL FOR AY 2004-05 TO A Y 2015-16, WHEREIN THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW HAV E BEEN FRAMED VIDE ORDER DATED 18.08.2017 IN ITA NO. 297 T O 302 FOR AY 2004-05 TO AY 2009-10 (SUBSEQUENTLY, SIMILAR ORD ER/S WERE PASSED FOR AY 2010-11 TO AY 2015-16): '3. HAVING HEARD LEARNED COUNSEL FOR THE PARTIES, T HE FOLLOWING QUESTIONS OF LAW ARE FRAMED FOR DETERMINA TION: (I) EVEN ASSUMING THAT THE ASSESSEE HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA, COULD ANY INCOME BE ATTRIBUTED TO SUCH PE ON ACCOUNT OF OFFSHORE SUPPLI ES? (II) IF THE ANSWER TO THE QUESTION (I) ABOVE IS IN THE AFFIRMATIVE WHAT SHOULD BE THE RATE OF ATTRIBUTION? 18 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. (III) IS THE ASSESSEE ENTITLED TO ADJUSTMENT OF THE EXPENSES ALREADY INCURRED BY IT BY WAY OF PAYMENT T O THE INDIAN ENTITY FOR MARKETING SERVICES? 4. FOR THE AY 2009-10, THE FOLLOWING ADDITIONAL QUE STION IS FRAMED:- WAS THE AO JUSTIFIED IN ADOPTING A DIFFERENT RATE O F ATTRIBUTION CONTRARY TO ARTICLE 7 OF THE INDO-CHINA DTAA?' 22. PER CONTRA, THE LD. DR EMPHATICALLY RELIED ON THE O RDERS PASSED BY THE LOWER AUTHORITIES. 23. HAVING HEARD THE PARTIES AT LENGTH, WE NOTICE THAT THE COORDINATE BENCH VIDE A DETAILED COMMON JUDGMENT DA TED 30.05.2016 FOR AY 2004-05 TO AY 2009-10 HAS ADJUDIC ATED THE ISSUE OF ATTRIBUTION OF PROFIT AND OBSERVED AS FOLL OWS: '24. THE ISSUE OF ATTRIBUTION OF PROFITS DEPENDS ON THE FACTS IN PARTICULAR CASE AND IS FULLY DEPENDENT ON THE LEVEL OF OPERATIONS OF THE ACTIVITIES CARRIED OUT IN INDIA. THIS IS EVIDENT FROM ARTICLE 7 OF DTAA AND EXPLANATION 1 TO CLAUSE (I) OF SECTION 9(1). FACTS IN TWO CASES CANNOT BE IDENT ICAL. THE AO HAD ATTRIBUTED ONLY 20% (FROM AYS. 2004-05 TO 20 08-09) OF THE OPERATING PROFIT AS PER THE GLOBAL FINANCIAL STATEMENT SUBMITTED BY THE ASSESSEE. THIS IMPLIES THAT 20% OF THE PROFITS WERE GENERATED ON ACCOUNT OF INVOLVEMENT OF PE IN THE REVENUE GENERATING STRUCTURE AND THE 80% PROFIT ACC RUED IN THE RESIDENT STATE. HOWEVER, FOR AY 2009-10, THE AO HAS ATTRIBUTED 45% OF THE OPERATING PROFIT. CONSIDERING THE 19 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. DIFFERENT MODES ADOPTED BY AO AND LD. CIT (A), IT B ECOMES NECESSARY TO EXAMINE THE LEVEL OF OPERATION CARRIED OUT BY PE IN INDIA SO AS TO ARRIVE AT REASONABLE PERCENTAGE O F PROFIT TO BE ATTRIBUTED TO PE IN INDIA. XXXXX 46. FROM THE AFOREMENTIONED DISCUSSION IT IS EVIDEN T THAT EACH CASE HAS TO BE CONSIDERED ON ITS OWN MERITS, D EPENDING UPON THE LEVEL OF OPERATIONS CARRIED OUT BY PE IN I NDIA. IN THE PRESENT CASE WE HAVE EARLIER REPRODUCED PARAS 6.2.2 AND 7.2.3 FROM LD. CIT(A)S ORDER AND ALSO FINDINGS FRO M AOS ORDER FOR AY 2009-10 WHICH GIVE A CLEAR PICTURE OF THE LEVEL OPERATIONS CARRIED OUT BY ZTE INDIA, THE ASSESSEES PE. LD. CIT(A) HAS POINTED OUT THAT ZTE INDIA IS DOING PREP ARATORY WORK, NEGOTIATING THE CONTRACT AND PRICE AND ANSWER ING SPECIFIED QUERIES OF THE CUSTOMERS ON BEHALF OF THE ASSESSEE. THESE ARE ALL VITAL FUNCTIONS WHICH ARE REVENUE GEN ERATING. THE AO IN AY 2009-10, AS NOTED EARLIER, HAS ELABORA TED IN DETAIL THE FUNCTIONS CARRIED OUT BY PE IN CONNECTIO N WITH SALE IN INDIA. AT THE COST OF REPETITION, WE REPRODUCE T HE SAME:- ACTIVITIES PERFORMED BY PE, SUMMARIZED BY AO AS UN DER, - SUPERVISION AND CONTROL OF PROJECTS IN INDIA BY M D OF ZTE INDIA - MEETINGS AT TENDERING/ PRE BID STAGE IN INDIA - PREPARATION OF BIDDING DOCUMENTS IN INDIA - SIGNING AND SUBMISSIONS OF BIDS IN INDIA - PRICE AND CONTRACT NEGOTIATIONS IN INDIA - PREPARATION OF DRAFT AGREEMENTS AND MOUS IN INDIA - SIGNING OF AGREEMENT IN INDIA - ENTERING CONTRACTS IN INDIA - OBTAINING PURCHASE ORDERS/ OTHER SUPPLY ORDERS ON BEHALF OF ZTE CHINA 20 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. - LC OPENING AND SUPPLY OF EQUIPMENTS/ HANDSETS - SHIPMENT OF EQUIPMENTS/ HANDSETS - CUSTOMS CLEARANCES - TRANSPORTATION AND DELIVERY - INSTALLATION AND COMMISSIONING - SUPERVISION OF INSTALLATION AND COMMISSIONING - TECHNICAL SUPPORT SERVICES - QUALITY ASSURANCES - AFTER SALES SERVICES AND REPLACEMENT - CONCLUDING AGREEMENTS AND MOUS ON BEHALF OF ZTE C HINA - PERFORMANCE GUARANTEE OF THE .COMPANY- ZTE - COORDINATION WITH GOVERNMENT DEPARTMENTS - NEGOTIATION AT GOVERNMENT LEVEL - DECISIONS REGARDING PARTNERSHIP WITH OTHER CONCER NS/ MARKETING. - FOREIGN INVESTMENTS IN INDIA - TAXATION MATTERS OF ZTE CHINA - MARKETING FUNCTIONS - BANKING FUNCTIONS - VISITING CUSTOMERS AND VENDORS 47. IN THE CASE OF MOTOROLA (SUPRA), TRIBUNAL HAS R EFERRED TO THE DECISION IN THE CASE OF AHMADBHAI UMARBHAI (SUP RA), WHEREIN IT HAS BEEN HELD THAT INCOME ATTRIBUTABLE T O THE MANUFACTURING ACTIVITY SHOULD BE MORE THAN THE INCO ME ATTRIBUTABLE TO THE ACTIVITY OF SALE. THEREFORE, OU T OF THE TOTAL GLOBAL INCOME OF ASSESSEE RELATABLE TO THE SUPPLIES MADE TO INDIA MORE INCOME IS TO BE ATTRIBUTED TO THE ASSESS EE AS ACCRUING IN CHINA AND FROM SALE ACTIVITY, IT IS NOT TO THAT EXTENT. WE FIND THAT LD. CIT (A) HAS ADOPTED THE RE ASONING IN THE CASE OF ALCATEL LUCENT. IN THIS DECISION LD. CI T (A) HIMSELF 21 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. NOTED THAT ASSESSEE HAD ACCEPTED AND NOT CONTESTED IN APPEAL ATTRIBUTION @ 2.5% OF TOTAL SALES REVENUE. T HEREFORE, THIS DECISION, CONSIDERED BY LD. CIT (A), CANNOT BE THE BASIS FOR ARRIVING AT THE CONCLUSION THAT 2.5% OF ENTIRE SALES REVENUE SHOULD BE ATTRIBUTABLE TO INDIAN PE, WHICH IS PRIMARILY AS PER RULE 10(1) METHODOLOGY PROVIDED. W E ARE NOT INCLINED TO ACCEPT THIS PLEA OF LD. CIT (DR). T HEREFORE, IN OUR OPINION, ATTRIBUTION IS TO BE DONE AS PER RULE 10(2) OF THE IT RULES. 48. LD. COUNSEL HAS ENDEAVOURED TO DISTINGUISH THE DECISION IN THE CASE OF ROLLS ROYCE PLC BY REFERRING TO ABSE NCE OF IDENTICAL ARTICLE 7(3) OF INDIA UK DTAA BEING PRESE NT IN INDIA CHINA DTAA. IN OUR OPINION, THIS IS NOT OF MUCH SIG NIFICANCE BECAUSE IT ONLY CONSIDERS THE INVOLVEMENT OF ASSESS EES REPRESENTATIVES IN NEGOTIATIONS. WE HAVE TO CONSIDE R THE OVERALL OPERATIONS CARRIED OUT BY PE IN INDIA. MERE INVOLVEMENT OF EXPATRIATES IN THE ACTIVITIES OF PE FOR ASSISTING THE INDIAN TEAM CANNOT SUBSTANTIALLY AFFECT THE REV ENUE GENERATING CAPACITY OF PE. 49. THE DECISION IN THE CASE OF M/S NORTEL NETWORKS INDIA INTERNATIONAL INC.( ITA NOS. 119 TO 121/DEL/2010 AN D 1153 TO 1155/DEL/2010 ORDER DATED13.6.2014), THE TRIBUNA L IN PARA 14.4 HAS NOTED THAT IN ASSESSEES CASE HARDWAR E SUPPLY CONTRACT WAS A PART OF THE TURNKEY CONTRACT WHICH INVOLVED SUPPLY, INSTALLATION, TESTING AND COMMISSI ONING ETC. AS IS IN THE PRESENT CASE. ACTIVITIES OF M/S NORTEL INDIA AND THAT OF LO OF NORTEL CANADA AND SERVICES OF EXPATRI ATE WORKERS HAD ALSO BEEN TAKEN AS PART OF THE EXECUTIO N OF THE WORK BY THE PE. THUS, THE LEVEL OF OPERATION CARRIE D OUT IN INDIA WERE EXTENSIVE AND UNDER SUCH CIRCUMSTANCES T RIBUNAL 22 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. HAD ATTRIBUTED 50% OF THE NET PROFIT ARISING OUT OF INDIAN TRANSACTIONS AS ASSESSEES INCOME. 50. HAVING DISCUSSED THE ENTIRE CASE LAW AND AFTER CONSIDERING THE FACTUAL ASPECTS, WE FIND THAT THE L EVEL OF OPERATIONS CARRIED OUT BY ASSESSEE THROUGH ITS PE I N INDIA ARE CONSIDERABLE ENOUGH TO CONCLUDE THAT ALMOST ENT IRE SALES FUNCTIONS INCLUDING MARKETING, BANKING AND AFTER SA LES WERE CARRIED OUT BY PE IN INDIA AND, THEREFORE, KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AH MEDBHAI UMARBHAI & CO. (SUPRA), THE DECISION OF ROLLS ROYCE (SUPRA) AND NORTEL NETWORKS INDIA INTERNATIONAL INC. (SUPRA ), WE ARE OF THE OPINION THAT IT WOULD MEET THE ENDS OF JUSTI CE IF 35% OF NET GLOBAL PROFITS AS PER PUBLISHED ACCOUNTS OUT OF TRANSACTIONS OF ASSESSEE WITH INDIA ARE ATTRIBUTED TO PE IN INDIA IN RESPECT OF BOTH HARDWARE AND SOFTWARE SUPP LIED BY ASSESSEE TO INDIAN CUSTOMERS. AT THIS JUNCTURE WE M AY POINT OUT THAT WHILE DECIDING THE DEPARTMENTS APPEAL IN SUBSEQUENT PART OF THIS ORDER, WE HAVE UPHELD THE F INDINGS OF LD. CIT (A) TO TAX THE INCOME FROM SALE OF SOFTWARE AS BUSINESS INCOME AND NOT ROYALTY. WE MAY POINT OUT T HAT IN AY 2009-10 THE AO ESTIMATED THE OPERATING PROFITS A T 7.5% AS AGAINST THE WEIGHTED AVERAGE OF NET OPERATING PR OFIT AT 2.53% AS PER THE GLOBAL ACCOUNTS. WE ARE NOT INCLIN ED TO ACCEPT THIS MODE OF COMPUTATION RESORTED BY AO, PAR TICULARLY IN VIEW OF RULE 10 OF THE IT RULES, WHICH MANDATES THE AO TO GO BY THE PUBLISHED ACCOUNTS OF ASSESSEE. IN THE RE SULT ASSESSEES GROUND NO. 6 IN AY 2009-10 STANDS ALLOWE D. WE MAY FURTHER CLARIFY THAT OUR DECISION DOES NOT AMOU NT TO ENHANCEMENT OF INCOME BECAUSE OVERALL TAX EFFECT WI LL BE LESS AS COMPARED TO TAX COMPUTED BY AO/CIT (A). 23 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 51. NOW WE PROCEED TO DECIDE THE ASSESSEES SUBMISS ION THAT SINCE FOR AY 2006-07 (RS. 20,56,87,472/-), 200 7-08 )RS. 17,10,23,750/-)AND FOR AY 2008-09 (RS. 2,38,84,545) , THE ASSESSEE HAD PAID MARKETING SUPPORT SERVICES, THERE FORE, NO ATTRIBUTION SHOULD BE MADE. THE SUBMISSION IS THAT TPO IN THE CASE OF ZTE INDIA HAS ACCEPTED THAT THE PAYMENT FOR MARKET SUPPORT SERVICE IS AT ARMS LENGTH AND, THER EFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF DITVS. MORGAN STANLEY 292 ITR 416, SINCE THE ASSESS EE HAD BEEN REMUNERATED ON AN ARMS LENGTH BASIS, NO FURTH ER PROFIT COULD BE ATTRIBUTED. WE ARE UNABLE TO ACCEPT THIS P LEA OF LD. COUNSEL OF THE ASSESSEE BECAUSE IT IS ONLY AFTER TH E SURVEY OPERATIONS WERE CARRIED OUT THAT EXTENSIVE INVOLVEM ENT OF PE CAME TO LIGHT.' 24. WE ALSO NOTE THAT THE DECISION OF TRIBUNAL IN ASSES SEE'S OWN CASE FOR AY 2004-05 TO AY 2009-10 HAS BEEN FOLLOWED IN SUBSEQUENT YEARS I.E., AY 2010-11 TO AY 2015-16 VID E COMMON JUDGMENT DATED 15.02.2019. NOW CONSIDERING THAT THE RE IS NO MATERIAL CHANGE IN FACTS AND THE LEGAL ISSUE ON ATT RIBUTION OF PROFIT IS ALREADY SUB-JUDICE IN ASSESSEE'S APPEAL BEFORE HIGH COURT, WHILST RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN EARLIER YEARS WE DISPOSE OFF THE GROUNDS R AISED IN ASSESSEE'S APPEAL FOR AY 2016-17 AND AY 2017-18. 24 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 25. HOWEVER, IT HAS BEEN BROUGHT TO OUR ATTENTION THAT IN AY 2017- 18, THE ASSESSING OFFICER HAS TAKEN THE OPERATING PROFITABILITY INSTEAD OF THE 'NET-OPERATING PROFITABILITY' AS PER PUBLISHED ACCOUNTS. IN VIEW OF THE DECISION AS RENDERED IN TH E PRECEDING YEARS, WE DIRECT THE ASSESSING OFFICER TO TAKE THE 'NET-OPERATING PROFITABILITY' AS PER PUBLISHED ACCOUNTS WHILST CALC ULATING THE ATTRIBUTION. 26. THE OTHER ISSUE RAISED IN DEPARTMENT'S APPEAL FOR A Y 2016-17 [GROUND NO. 1 TO 3] AND ASSESSEES APPEAL FOR AY 20 17-18 [GROUND NO. 15 TO 17]IS REGARDING THE TAXABILITY OF INCOME FROM SUPPLY OF SOFTWARE AS ROYALTY. 27. THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE DEPARTMENT VIDE COMMON JUD GMENT DATED 30.05.2016 FOR ASSESSMENT YEAR 2004-05 TO AY 2009-10 AND COMMON JUDGMENT DATED 15.02.2019 FOR ASSESSMENT YEAR 2010-11 TO AY 2015-16. HE ALSO DREW OUR ATTENTION TO THE FACT THAT DEPARTMENT'S APPEAL ON THIS ISSUE HAS BEEN DIS MISSED BY 25 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. THE HON'BLE DELHI HIGH COURT FOR AY 2004-05 TO AY 2 015-16. HE FURTHER SUBMITTED THAT THOUGH DEPARTMENT'S PETITION 'S CHALLENGING JUDGMENT OF HON'BLE DELHI HIGH COURT IS SUB-JUDICE BEFORE THE HON'BLE SUPREME COURT, HOWEVER, RECENTLY IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P RIVATE LIMITED V. CIT (2021 SCC ON LINE SC 159) THE RATIO LAID DOWN BY THE HIGH COURT IN THE CASE OF ASSESSEE HAS BEEN EXPRESSLY APPROVED. ALTERNATIVELY, HE ALSO ARGUED THAT CONSID ERING THAT THE SALE OF SOFTWARE WAS INEXTRICABLY LINKED WITH THE HARDWARE AND ASSUMING THAT THERE EXISTS A PERMANENT ESTABLIS HMENT OF THE ASSESSEE IN INDIA, THAN SUCH INCOME FROM SALE O F SOFTWARE COULD NOT BE TAXED AS 'ROYALTY' IN TERMS OF THE EXC LUSION CARVED OUT UNDER ARTICLE 12(5) OF THE INDIA-CHINA DTAA AND THUS, EVEN SUCH INCOME FROM SALE OF SOFTWARE WOULD BE TAXABLE A S 'BUSINESS PROFITS' IN TERMS OF ARTICLE 7 OF THE IND IA-CHINA DTAA. 28. THE LD. DR RELIED ON THE ORDERS PASSED BY THE LOWER AUTHORITIES FOR AY 2016-17 AND AY 2017-18. 26 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 29. WE HAVE HEARD THE PARTIES AT LENGTH. WE NOTE THAT T HE CO- ORDINATE BENCH IN ASSESSEE'S OWN CASE FOR AY 2004-05 TO AY 2009-10 VIDE COMMON JUDGMENT DATED 30.05.2016 HAD D ECIDED THE ISSUE IN FAVOUR OF ASSESSEE WHILST OBSERVING AS FOLLOWS: '73. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND TH AT IN THE CASE OF ALCATEL LUCENT, FRANCE TRIBUNAL IN PARA 12, 13& 14 IT HAS BEEN HELD AS UNDER: 12. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFO RE US. WE FIND THAT LEARNED CIT(A) ALLOWED THE RELIEF TO THE ASSESSEE FOLLOWING THE DECISION OF ITAT IN ASSESSEE 'S OWN CASE FOR AY 1997-98 IN ITA NO.407/DEL/200L. THE ITAT HAD DELIVERED THE ABOVE DECISION FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF MO TOROLA INC. (SUPRA). WE FIND AT HON'BLE JURISDICTIONAL HIG H COURT UPHELD THE DECISION OF ITAT OF SPECIAL BENCH IN THE CASE OF MOTOROLA INC. (SUPRA) IN THE CASE OF DIT VS. ERI CSSON A.B. (SUPRA). IN THE APPEAL BY THE REVENUE, QUESTIO N NO.3 PRE POSED BEFORE THE HON'BLE JURISDICTIONAL HI GH COURT AND ADMITTED BY THEIR LORDSHIPS READS AS UNDE R.- 'WHETHER IN LAW, THE LEARNED DELHI TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE CONSIDERATION FOR SUP PLY OF SOFTWARE WAS NOT A PAYMENT BY WAY OF ROYALTY, AND, HENCE, WAS NOT ASSESSABLE BOTH UNDER SECTION 9(1)(VI) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN THE GOVERNMENT OF INDIA AND SWEDEN?' 27 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. 13. THAT THE HON'BLE JURISDICTIONAL HIGH COURT, AFT ER DETAILED DISCUSSIONS WHICH ARE AT PAGES 474 TO 506 OF THE ITR 343, ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 14. THE REVENUE HAD ALSO FILED THE APPEAL AGAINST T HE DECISION OF ITAT IN ASSESSEE'S OWN CASE WHICH IS DECIDED BY THEIR LORDSHIPS ALONGWITH VARIOUS OTHER CASES INCLUDING THE CASE OF M/S NOKIA NETWORKS, IN THIS CASE ALSO, THE QUESTION NO.3 PROPOSED BY THE REVENU E AND ADMITTED BY THEIR LORDSHIPS READS AS UNDER:- 'WHETHER ANY PART OF THE CONSIDERATION FOR SUPPLY O F SOFTWARE STATED BY THE RESPONDENT TO BE INTEGRAL TO THE EQUIPMENT IS TAXABLE AS 'ROYALTY' EITHER UNDER SECTION 9(1)(VI) OR THE RELEVANT PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT?' AFTER DETAILED DISCUSSION, THEIR LORDSHIPS ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF ERICSSON A.B. (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF LEARNED CIT(A) IN THIS REGARD AND REJECT G ROUND NO.2 OF THE REVENUE'S APPEAL. 74. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, AS NOTED BY TRIBUNAL, GR OUND NOS. 2 & 3 ARE REJECTED.' 30. THEREAFTER, THE DEPARTMENT AGITATED THE SAID JUDGME NT DATED 30.05.2016 PASSED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 2004-05 TO AY 2009-10 BEFORE THE HIGH COURT. THE HON'BLE 28 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. DELHI HIGH COURT VIDE JUDGMENT DATED 24.01.2017 PAS SED IN ITA NO. 904 TO 909 OF 2016 FOR AY 2004-05 TO AY 200 9- 10[(2017) 77 TAXMANN.COM 304 (DELHI)] DISMISSED THE APPEAL OF THE DEPARTMENT BY OBSERVING AS FOLLOWS: '5. THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT T HE SOFTWARE EMBEDDED IN THE TELECOM EQUIPMENT OR PROVI DED TO THE CUSTOMERS SEPARATELY, OR SOFTWARE SUPPLIED TO T HE VARIOUS CUSTOMERS IN INDIA SHOULD NOT BE TREATED AS ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT AND ALSO UNDER ARTICLE 12(3) OF THE DTAA. THE ASSESSEE HAD ARGUED THAT: (A) SOFTWARE IS SOLD IN THE SAME MANNER AS TELECOM EQUIPMENT, (B) THE SOFTWARE IS AN INTEGRAL PART OF THE TELECOM EQUIPMENT, WHICH FACILITATES RUNNING OF THE SAID EQUIPMENT. (C) THE SUBJECT SOFTWARE HAS NO INDEPENDENT VALUE O F ITS OWN. (D) NO COPYRIGHTS IN THE SOFTWARE ARE TRANSFERRED T O THE CUSTOMERS. (E) NO ACCESS TO THE 'SOURCE CODES' IN THE SOFTWARE IS GRANTED TO THE CUSTOMER. (F) PAYMENT FOR SOFTWARE IS NOT RELATED TO THE PROD UCTIVITY, USE OR NUMBER OF SUBSCRIBERS. (G) CUSTOMERS DO NOT HAVE THE RIGHT TO COMMERCIALLY EXPLOIT THE SOFTWARE. (H) SOFTWARE SUPPLY IS IN THE NATURE OF TRANSFER OF COPYRIGHTED ARTICLE AND NOT TRANSFER OF 'A COPYRIGHTED RIGHT'. 6. THE ASSESSEE ALSO RELIED ON THE DEFINITION OF 'C OPYRIGHT' UNDER SECTION 14 OF THE INDIAN COPYRIGHT ACT, 1957. IT ALSO RELIED ON THE DECISION OF DELHI SPECIAL BENCH TRIBU NAL IN 29 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. MOTOROLA INC. V. DY. CIT [2005] 95 ITD 269/147 TAXM AN 39 (MAG.) (DELHI) (SB). IT WAS THEREFORE STATED THAT T HE RECEIPTS FROM SALE OF COMPUTER SOFTWARE IS IN THE NATURE OF PAYMENT FOR THE USE OF COPYRIGHTED ARTICLE AS AGAINST PAYME NT FOR USE OF A COPYRIGHT IN THE SOFTWARE AND HENCE SUCH PAYME NT SHALL NOT CONSTITUTE ROYALTY UNDER INDIACHINA TAX TREATY. 7. THE AO ALSO REFERRED TO THE DECISION OF THE AUTH ORITY FOR ADVANCE RULING IN WORLEY PARSONS PTY. LTD., IN RE [ 2009] 312 ITR 273/179 TAXMAN 347 FOR THE PROPOSITION THAT THE PAYMENTS FOR SOFTWARE SHOULD BE TAXED ON CASE BASIS , SINCE THE SAME WERE NOT EFFECTIVELY CONNECTED TO THE PE O F THE ASSESSEE IN INDIA. THE ASSESSEE IN ITS REPLY DISTIN GUISHED THIS DECISION ON FACTS AND POINTED OUT THAT AAR HEL D SO SINCE NO MATERIAL EVIDENCE WAS PLACED BY THE ASSESSEE TO DEMONSTRATE THE ROLE PLAYED BY THE PE UNDER THE PMS CONTRACT AND ITS RELATIONSHIP WITH THE ROYALTY REVE NUE EARNED UNDER THE BE & P CONTRACT. IT WAS POINTED OUT THAT THE APPLICANT BEFORE THE RULING WAS NOT ABLE TO DEMONST RATE 'EFFECTIVE CONNECTION' BETWEEN THE BE & P REVENUE A ND PE UNDER THE PMS CONTRACT. THE AO REJECTED THESE CONTE NTIONS. 8. AGGRIEVED BY THE AO'S ORDER, THE ASSESSEE APPEAL ED TO THE CIT (A). THE APPELLATE COMMISSIONER ACCEPTED THE AS SESSEE'S CONTENTIONS AND FOUND AS FOLLOWS: (I) ASSESSEE HAD FIXED PLACE PE AND DEPENDENT AGENC Y PE IN INDIA. HOWEVER, HE DID NOT ACCEPT THE AO'S PLEA AS REGARDS INSTALLATION PE IN INDIA. (II) ON THE ISSUE OF TAXATION OF SOFTWARE EMBEDDED IN TELECOM EQUIPMENT MOBILE HANDSETS, CIT (A) HELD IT TO BE TA XABLE AS BUSINESS PROFIT. (III) AS REGARDS THE COMPUTATION OF PROFITS ATTRIBU TABLE TO PE, THE CIT(A) HELD THAT 2.5% OF TOTAL SALES MADE BY FO REIGN 30 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. COMPANY IN INDIA WAS TO BE ATTRIBUTED AS BUSINESS P ROFITS OF PE (INCLUDING THE VALUE OF SOFTWARE). (IV) THE CIT (A) ALSO DIRECTED THE AO TO DELETE THE INTEREST LEVIED UNDER SECTION 234B. XXXX 20. THE MISCONCEPTION THAT THE REVENUE HARBORS STEM S FROM ITS FLAWED APPRECIATION OF A COPYRIGHT LICENSE. TRU E, 'COPYRIGHT' IS NOT DEFINED; YET WHAT WORKS ARE CAPA BLE OF COPYRIGHT PROTECTION IS SPELT OUT IN THE COPYRIGHT ACT. SECTIONS 13 AND 14 OF THE COPYRIGHT ACT FLESH OUT THE ESSENT IAL INGREDIENTS THAT MAKE COPYRIGHT A PROPERTY RIGHT. M ORE PARTICULARLY, SECTION 14 STATES AS FOLLOWS: '14. MEANING OF COPYRIGHT FOR THE PURPOSES OF THIS ACT, 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT SUBJECT TO TH E PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOIN G OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBS TANTIAL PART THEREOF, NAMELY : (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK NOT BEING A COMPUTER PROGRAMME (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCL UDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; (VI) TO MAKE ANY ADAPTATION OF THE WORK; 31 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADA PTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUBCLAUSES(I) TO (VI) (B) IN THE CASE OF A COMPUTER PROGRAMME, (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A) (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. (C) IN THE CASE OF AN ARTISTIC WORK, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCL UDING DEPICTION IN THREE DIMENSIONS OF A TWO DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUBCLAUSE S(I) TO (IV); (D) IN THE CASE OF A CINEMATOGRAPH FILM (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGR APH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC (E) IN THE CASE OF A SOUND RECORDING (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; 32 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUB LIC EXPLANATION - FOR THE PURPOSES OF THIS SECTION, A C OPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALR EADY IN CIRCULATION.' THUS, SECTION 14 CATEGORICALLY PROVIDES THAT COPYRI GHT 'MEANS THE EXCLUSIVE RIGHT TO DO OR AUTHORIZING THE DOING OF ANY OF THE ACTS MENTIONED IN SECTION 14(A) TO (E) O R ANY SUBSTANTIAL PART THEREOF. THE CONTENT OF COPYRIGHT IN RESPECT OF COMPUTER PROGRAMMES IS SPELT OUT IN SECTION 14(B ). A JOINT READING OF THE CONTROLLING PROVISIONS OF THE EARLIE R PART OF SECTION 14 WITH CLAUSE (B) IMPLIES THAT IN THE CASE OF COMPUTER PROGRAMS, COPYRIGHT WOULD MEAN THE DOING O R AUTHORIZING THE DOING IN RESPECT OF WORK (I.E. THE PROGRAMME) OR ANY SUBSTANTIAL PART THEREOF (B) IN THE CASE OF A COMPUTER PROGRAMME, (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A) (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THEPROGRAMME I TSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL.' 21. THE REFERENCE TO CLAUSES (A) AND (B) MEANS THAT ALL THE RIGHTS WHICH ARE IN LITERARY WORKS I.E. '(I) TOREPR ODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS;(II)TO ISSUE COPIES OF T HE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO TH E PUBLIC;(IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND 33 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. RECORDING IN RESPECT OF THE WORK;(V) TO MAKE ANY TR ANSLATION OF THE WORK;(VI) TO MAKE ANY ADAPTATION OF THE WORK ;(VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATION O F THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK I N SUBCLAUSES(I) TO (VI)' INHERE IN THE OWNER OF COPYR IGHT OF A COMPUTER PROGRAMME. THEREFORE, THE COPYRIGHT OWNER' S RIGHTS ARE SPELT OUT COMPREHENSIVELY BY THIS PROVISION. IN THE CONTEXT OF THE FACTS OF THIS CASE, THE ASSESSEE IS THE COPYRIGHT PROPRIETOR; IT MADE AVAILABLE, THROUGH ONE TIME LIC ENSE FEE, THE SOFTWARE TO ITS CUSTOMERS; THIS SOFTWARE WITHOU T THE HARDWARE WHICH WAS SOLD, IS USELESS. CONVERSELY THE HARDWARE SOLD BY THE ASSESSEE TO ITS CUSTOMERS IS A LSO VALUELESS AND CANNOT BE USED WITHOUT SUCH SOFTWARE. THIS ANALYSIS IS TO SHOW THAT WHAT WAS CONVEYED TO ITS C USTOMERS BY THE ASSESSEE BEARS A CLOSE RESEMBLANCE TO GOODS SIGNIFICANTLY ENOUGH, SECTION 14(1) TALKS OF SALE O R RENTAL OF A 'COPY'. THE QUESTION OF CONVEYING OR PARTING WITH C OPYRIGHT IN THE SOFTWARE ITSELF WOULD MEAN THAT THE COPYRIGHT P ROPRIETOR HAS TO ASSIGN IT, DIVESTING ITSELF OF THE TITLE IMP LYING THAT IT HAS DIVESTED ITSELF OF ALL THE RIGHTS UNDER SECTION 14. THIS WOULD MEAN AN OUTRIGHT SALE OF THE COPYRIGHT OR ASS IGNMENT, UNDER SECTION 18 OF THE ACT. SECTION 16 OF THE COPY RIGHT ACT ENACTS THAT THERE CANNOT BE ANY OTHER KIND OF RIGHT TERMED AS 'COPYRIGHT'. 22. IN THE PRESENT CASE, THE FACTS ARE CLOSELY SIMI LAR TO ERICSON. THE SUPPLIES MADE (OF THE SOFTWARE) ENABLE D THE USE OF THE HARDWARE SOLD. IT WAS NOT DISPUTED THAT WITH OUT THE SOFTWARE, HARDWARE USE WAS NOT POSSIBLE. THE MERE F ACT THAT SEPARATE INVOICING WAS DONE FOR PURCHASE AND OTHER TRANSACTIONS DID NOT IMPLY THAT IT WAS ROYALTY PAYM ENT. IN SUCH CASES, THE NOMENCLATURE (OF LICENSE OR SOME OT HER FEE) IS 34 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. INDETERMINATE OF THE TRUE NATURE. NOR IS THE CIRCUM STANCE THAT UPDATES OF THE SOFTWARE ARE ROUTINELY GIVEN TO THE ASSESSEE'S CUSTOMERS. THESE FACTS DO NOT DETRACT FROM THE NATU RE OF THE TRANSACTION, WHICH WAS SUPPLY OF SOFTWARE, IN THE N ATURE OF ARTICLES OR GOODS. THIS COURT IS ALSO NOT PERSUADED WITH THE SUBMISSION THAT THE PAYMENTS, IF NOT ROYALTY, AMOUN TED TO PAYMENTS FOR THE USE OF MACHINERY OR EQUIPMENT. SUC H A SUBMISSION WAS NEVER ADVANCED BEFORE ANY OF THE LOW ER TAX AUTHORITIES; MOREOVER, EVEN IN ERICSON A.B. (SUPRA) , A SIMILAR PROVISION EXISTED IN THE DTAA BETWEEN INDIA AND SWE DEN.' 31. WE ALSO NOTE THAT THE HON'BLE SUPREME COURT IN ENGI NEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED V. CI T (2021 SCC ON LINE SC 159) AT PARA 118 OF THE JUDGMENTS HAS QU OTED PARA 20 TO 22 OF THE SAID JUDGMENT DATED 24.01.2017 PASS ED BY THE HON'BLE DELHI HIGH COURT IN ASSESSEE'S CASE AND THE REAFTER OBSERVED AS FOLLOWS: '119. THE CONCLUSIONS THAT CAN BE DERIVED ON A READ ING OF THE AFORESAID JUDGMENTS ARE AS FOLLOWS: I) COPYRIGHT IS AN EXCLUSIVE RIGHT, WHICH IS NEGATI VE IN NATURE, BEING A RIGHT TO RESTRICT OTHERS FROM DOING CERTAIN ACTS. II) COPYRIGHT IS AN INTANGIBLE, INCORPOREAL RIGHT, IN THE NATURE OF A PRIVILEGE, WHICH IS QUITE INDEPENDENT OF ANY M ATERIAL SUBSTANCE. OWNERSHIP OF COPYRIGHT IN A WORK IS DIFF ERENT FROM THE OWNERSHIP OF THE PHYSICAL MATERIAL IN WHIC H THE COPYRIGHTED WORK MAY HAPPEN TO BE EMBODIED. AN OBVI OUS EXAMPLE IS THE PURCHASER OF A BOOK OR A CD/DVD, WHO 35 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. BECOMES THE OWNER OF THE PHYSICAL ARTICLE, BUT DOES NOT BECOME THE OWNER OF THE COPYRIGHT INHERENT IN THE W ORK, SUCH COPYRIGHT REMAINING EXCLUSIVELY WITH THE OWNER. III) PARTING WITH COPYRIGHT ENTAILS PARTING WITH TH E RIGHT TO DO ANY OF THE ACTS MENTIONED IN SECTION 14 OF THE COPY RIGHT ACT. THE TRANSFER OF THE MATERIAL SUBSTANCE DOES NOT, OF ITSELF, SERVE TO TRANSFER THE COPYRIGHT THEREIN. THE TRANSF ER OF THE OWNERSHIP OF THE PHYSICAL SUBSTANCE, IN WHICH COPYR IGHT SUBSISTS, GIVES THE PURCHASER THE RIGHT TO DO WITH IT WHATEVER HE PLEASES, EXCEPT THE RIGHT TO REPRODUCE THE SAME AND ISSUE IT TO THE PUBLIC, UNLESS SUCH COPIES ARE ALREADY IN CIRCULATION, AND THE OTHER ACTS MENTIONED IN SECTION 14 OF THE C OPYRIGHT ACT. IV) A LICENCE FROM A COPYRIGHT OWNER, CONFERRING NO PROPRIETARY INTEREST ON THE LICENSEE, DOES NOT ENTA IL PARTING WITH ANY COPYRIGHT, AND IS DIFFERENT FROM A LICENCE ISSUED UNDER SECTION 30 OF THE COPYRIGHT ACT, WHICH IS A L ICENCE WHICH GRANTS THE LICENSEE AN INTEREST IN THE RIGHTS MENTIONED IN SECTION 14(A) AND 14(B) OF THE COPYRIGHT ACT. WH ERE THE CORE OF A TRANSACTION IS TO AUTHORIZE THE END USER TO HAVE ACCESS TO AND MAKE USE OF THE LICENSED COMPUTER S OFTWARE PRODUCT OVER WHICH THE LICENSEE HAS NO EXCLUSIVE RI GHTS, NO COPYRIGHT IS PARTED WITH AND CONSEQUENTLY, NO INFRI NGEMENT TAKES PLACE, AS IS RECOGNIZED BY SECTION 52(1)(AA) OF THE COPYRIGHT ACT. IT MAKES NO DIFFERENCE WHETHER THE E ND-USER IS ENABLED TO USE COMPUTER SOFTWARE THAT IS CUSTOMISED TO ITS SPECIFICATIONS OR OTHERWISE. V) A NON-EXCLUSIVE, NON-TRANSFERABLE LICENCE, MEREL Y ENABLING THE USE OF A COPYRIGHTED PRODUCT, IS IN THE NATURE OF RESTRICTIVE CONDITIONS WHICH ARE ANCILLARY TO SUCH USE, AND CANNOT BE CONSTRUED AS A LICENCE TO ENJOY ALL OR AN Y OF THE 36 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. ENUMERATED RIGHTS MENTIONED IN SECTION 14 OF THE CO PYRIGHT ACT, OR CREATE ANY INTEREST IN ANY SUCH RIGHTS SO A S TO ATTRACT SECTION 30 OF THE COPYRIGHT ACT. VI) THE RIGHT TO REPRODUCE AND THE RIGHT TO USE COM PUTER SOFTWARE ARE DISTINCT AND SEPARATE RIGHTS, AS HAS B EEN RECOGNIZED IN SBI V. COLLECTOR OF CUSTOMS, (2000) 1 SCC 727 (SEE PARAGRAPH 21), THE FORMER AMOUNTING TO PARTING WITH COPYRIGHT AND THE LATTER, IN THE CONTEXT OF NON-EXC LUSIVE EULAS, NOT BEING SO. 120. CONSEQUENTLY, THE VIEW CONTAINED IN THE DETERM INATIONS OF THE AAR IN DASSAULT (AAR) (SUPRA) AND GEOQUEST ( AAR) (SUPRA) AND THE JUDGMENTS OF THE HIGH COURT OF DELH I IN ERICSSON A.B. (SUPRA), NOKIA NETWORKS OY (SUPRA), I NFRASOFT (SUPRA),ZTE (SUPRA), STATE THE LAW CORRECTLY AND HA VE OUR EXPRESS APPROVAL. WE MAY ADD THAT THE VIEW EXPRESSE D IN THE AFORESAID JUDGMENTS AND DETERMINATIONS ALSO ACC ORDS WITH THE OECD COMMENTARY ON WHICH MOST OF INDIA'S D TAAS ARE BASED.' 32. WE ALSO NOTE THAT THE SUBSEQUENT APPEALS FOR AY 201 0-11 TO 2015-16 PREFERRED BY THE DEPARTMENT ON THE ISSUE OF SOFTWARE HAVE ALSO BEEN DISMISSED BY THE HONBLE HIGH COURT. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINA TE BENCH AS APPROVED BY THE JURISDICTIONAL HIGH COURT, WE RULE I N FAVOUR OF THE ASSESSEE. WE ALSO AGREE WITH THE ALTERNATE ARGUM ENT OF THE ASSESSEE THAT SINCE THE SALE OF SOFTWARE IS INEXTRIC ABLY LINKED 37 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. WITH SALE OF SOFTWARE THAN THE PROVISION OF ARTICLE 1 2(5) OF THE INDIA-CHINA DTAA WOULD BE APPLICABLE AND SUCH INCOM E FROM SUPPLY OF SOFTWARE COULD BE TAXED ONLY AS BUSINESS P ROFITS IN TERMS OF ARTICLE 7 OF THE INDIA-CHINA DTAA. 33. NO OTHER GROUNDS HAVE BEEN PRESSED BEFORE US IN RES PECT TO APPEALS FOR AY 2016-17 AND AY 2017-18 AND THE SAME ARE DISPOSED OFF ACCORDINGLY. 34. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE FOR AY 2016-17 AND AY 2017-18 ARE PARTLY ALLOWED AS INDICATED ABOV E. WHEREAS, THE APPEAL OF THE REVENUE AND CROSS-OBJECT ION OF THE ASSESSEE FOR AY 2016-17 ARE DISMISSED AS INDICATED ABOVE. STAY APPLICATION NO. 364/DEL/2020 IS DISMISSED AS IN FRUCTUOUS. ORDER PRONOUNCED ON 30 TH JUNE, 2021 [ SD/- SD/- (ANIL CHATURVEDI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:30/06/2021 *DRAGON* 38 ITA NOS.1930 & 1474 / DEL/2020 ITA NO.818 5/DEL/2019 SA NO.364/DEL/2 020 & CO NO.07/DEL/2021 ZTE CORPOR ATION VS. DCIT & ORS. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI