M/s. Siemens Mobile Communication SpA, New Delhi V. DDIT, New Delhi

ITA 3148/DEL/2009

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5825 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 13-04-2017
• Assessment Year: 2000-2001
• Appeal Filed On: 08-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL C IT DR INTLL
• Keywords: Business income; Double taxation relief; Retrospective amendment; Permanent establishment; Set aside
• Section: 234B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI G BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 2810/DEL/2003 [A.Y 1998-1999] ITA NO. 3147/DEL/2003 [A.Y 1999-2000] ITA NO. 3148/DEL/2009 [A.Y 2000-2001] ITA NO. 3149/DEL/2009 [A.Y 2001-2002] ITA NO. 3150/DEL/2009 [A.Y 2002-2003] M/S SIEMENS MOBILE COMMUNICATIONS SPA VS. THE DY.C. I.T [FORMERLY SIEMENS INFORMATION AND [NOW D. D.I.T] COMMUNICATION NETWORKS SPA] INTLL. TAXATION [FORMERLY ITALTEL SPA] NEW DELHI PAN : ITA NO. 3012/DEL/2003 [A.Y 1998-1999] THE DY.C.I.T VS. M/S SIEMENS MOBILE COMMUNICATIONS SPA [NOW D.D.I.T] [FORMERLY SIEMENS INFORMATION AND INTLL. TAXATION COMMUNICATION NETWORKS SPA] NEW DELHI [FORMERLY ITALTEL SPA] PAN : (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHO PRA, ADV MS. PRIYA TANDON, ADV DEPARTMENT BY : SHRI G.K. DHALL, C IT- DR [INTLL.] DATE OF HEARING : 30.08.2019 DATE OF PRONOUNCEMENT : 30.09.2019 - 2- ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS IS A BUNCH OF APPEALS FILED BY THE ASSESSEE FO R ASSESSMENT YEARS 1998-99 TO 2002-03. THE REVENUE HAS FILED CROSS AP PEAL FOR ASSESSMENT YEAR 1998-99. SINCE COMMON ISSUES ARE INVOLVED IN ALL THE ABOVE APPEALS PERTAINING TO SAME ASSESSEE, THESE ARE BEING DISPOS ED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTA NCE OF THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGH T ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 18(6) OF ITAT R ULES. JUDICIAL DECISIONS RELIED UPON WERE CAREFULLY PERUSED. 3. THE APPELLANT, M/S SIEMENS MOBILE COMMUNICATIONS [SMCS FOR SHORT], IS A COMPANY INCORPORATED UNDER THE LAWS OF ITALY. THE APPELLANT WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPP LY OF MICROWAVE TRANSMISSION EQUIPMENT. DURING THE YEARS UNDER CONS IDERATION, SMCS - 3- SUPPLIED MICROWAVE TRANSMISSION EQUIPMENT (INCLUDIN G BOTH HARDWARE AND SOFTWARE COMPONENTS) TO ITS CUSTOMERS IN INDIA, BEI NG INDEPENDENT TELECOM OPERATORS VIZ., BPL MOBILE COMMUNICATIONS L TD., USHA MARTIN TELECOM LTD., TATA COMMUNICATIONS LTD., MODICOM NET WORK PVT. LTD. AND AIRCEL DIGILINK PVT. LTD. 4. THE QUARREL IS IN RESPECT OF TAXABILITY OF OFFSH ORE SUPPLIES MADE BY SMCS TO THE AFOREMENTIONED TELECOM OPERATORS IN IND IA. THE REVENUE HAS TAKEN THE CONSISTENT POSITION THAT SOME PORTION OF THE PROFIT RELATING TO THESE OFFSHORE SUPPLIES SHOULD BE BROUGHT TO TAX IN INDIA. THE BASIS FOR THIS POSITION TAKEN BY THE REVENUE IS THE ACTIVITIE S RELATING TO INSTALLATION, COMMISSIONING AND MAINTENANCE, WHICH WOULD REQUIRE THE PRESENCE OF SMCS IN INDIA AND HENCE SOME PORTION OF THE PROFIT WOULD TRIGGER TAXABILITY IN INDIA. 5. THE ASSESSING OFFICER AND THE LD. DR HAVE EMPHAS IZED THAT UNLESS THESE ACTIVITIES ARE COMPLETED, SALE CANNOT BE SAID TO HAVE BEEN CONCLUDED. - 4- 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS CONSISTENTLY TAKEN A STAND THAT NO PORTION OF THE PROFITS ARISIN G FROM OFFSHORE SUPPLIES ARE LIABLE TO BE TAXED IN INDIA. FOR THIS PROPOSIT ION, THE LD. COUNSEL FOR THE ASSESSEE PLACED STRONG RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJMA-HARIMA HEA VY INDUSTRIES LTD. 288 ITR 408, THOUGH IT WAS IN CONTEXT OF THE PROVIS IONS OF SECTION 9(1)(I) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED T O AS 'THE ACT']. SIMILAR VIEW WAS TAKEN BY THE HONBLE HIGH COURT OF DELHI, IN THE CASE OF NORTEL NETWORKS INDIA INTERNATIONAL INC. 386 ITR 353. 7. THE ENTIRE QUARREL CAN BE SUMMARIZED IN THE FORM OF THE FOLLOWING QUESTIONS: (A) WHETHER SMCS HAD A BUSINESS CONNECTION IN TERMS O F SECTION 9(1)(I) OF THE ACT? (B) EVEN IF THE ANSWER TO THE ABOVE IS YES, WHETHER IN ABSENCE OF ANY PERMANENT ESTABLISHMENT ( PE ) OF SMCS IN INDIA, COULD THERE BE ANY TAX LIABILITY ON SMCS IN INDIA? - 5- (C) EVEN IF THERE DID EXIST A PE OF SMCS IN INDIA, CAN IT BE STATED THAT SOME ACTIVITIES RELATING TO OFFSHORE SUPPLIES WERE CARRIED OUT IN INDIA, TO TRIGGER TAXABILITY IN INDIA? (D) THE ADMITTED FACT BEING THAT THE ACTIVITIES PERTAIN ING TO INSTALLATION, TESTING AND COMMISSIONING WERE CARRIE D OUT BY THE TELECOM OPERATORS IN INDIA THEMSELVES OR SIEMENS PU BLIC COMMUNICATION NETWORK LIMITED ( SPCNL ), AN INDIAN COMPANY, UNDER DIRECT AND INDEPENDENT CONTRACTS WITH SUCH TE LECOM OPERATORS, WOULD MAKE ANY EXPOSURE ON SMCS FOR EXIS TENCE OF AN INSTALLATION PE UNDER ARTICLE 5(2)(J) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND ITALY (DTAA)? (E) WHETHER THE LIAISON OFFICE ( LO ) OPENED BY THE APPELLANT COULD BE ANY EXPOSURE OF A PE ON SMCS IN TERMS OF HAVING THI S LO IN INDIA? (F) WHETHER IN ABSENCE OF ANY EMPLOYEES OF SMCS BEING I NVOLVED IN ACTIVITIES PERTAINING TO INSTALLATION, TESTING AND COMMISSIONING IN INDIA, THERE COULD BE ANY EXPOSURE ON SMCS OF HAVIN G A FIXED PLACE PE IN TERMS OF ARTICLE 5(1) OF THE DTAA? - 6- (G) WHETHER THE SPCNL COULD BE SAID TO BE A DEPENDENT A GENT PE ( DAPE ) OF SMCS IN INDIA, UNDER ARTICLE 5(4) OF THE DTAA? 8. THE HONBLE SUPREME COURT IN THE CASE OF FORMULA ONE WORLD CHAMPIONSHIP LTD. 394 ITR 80 AND ADIT V. E-FUNDS IT SOLUTION INC. 399 ITR 34 HAS HELD THAT THERE TRIGGERS NO TAXABILITY I N RESPECT OF OFFSHORE SUPPLIES IN THE ABSENCE OF A PE OF THE NON-RESIDENT ASSESSEE IN INDIA. IN SO FAR AS THE ATTRIBUTION OF PROFIT IS CONCERNED, A S ENSHRINED IN ARTICLE 7 OF THE DTAA, THE SAME WOULD BE INAPPLICABLE IN ABSE NCE OF ANY ACTIVITY RELATING TO THE OFFSHORE SUPPLIES BEING CARRIED OUT IN INDIA. 9. INTERESTINGLY, IN 1998-99, THE LD. CIT(A) HAS DE CIDED THE ISSUE INVOLVING THE EXISTENCE OF A PE IN FAVOUR OF THE AP PELLANT. HOWEVER, IN SUBSEQUENT YEARS, THE SUCCESSOR LD. CIT(A) DID NOT FOLLOW THE ORDER PASSED BY HIS PREDECESSOR. 10. AS MENTIONED ELSEWHERE, THE APPELLANT HAS SUPPL IED ITEMS TO INDEPENDENT TELECOM OPERATORS AND SUCH SUPPLIES HAV E BEEN MADE OFFSHORE. A PERUSAL OF THE CONTRACTS WITH THE TELE COM OPERATORS SHOWS - 7- THAT SUPPLY WAS CONCLUDED WITH THE TITLE AND RISK I N THE COMPONENTS PASSING ON TO THE CONCERNED TELECOM OPERATORS OFFSH ORE. 11. HOWEVER, THE LD. DR HAS ANALYZED THE CONTRACTS IN A TABULAR FORM AS UNDER: D ATE OF ONTRACT N N AT URE OF CONTRACT NAME OF THE PARTY AUTH. SIGNATORY REMARKS 5 - 11 - 96 1 DESIGN, MANUFACTURE AND DELIVERY OF PRODUCT [PB- 1; CL.2.1, P. 134] PRODUCT' MEANS, IN RELATION TO SIEMENS, THE NSS [PB- 1; CL.1.1, P. 132] OR NETWORK SWITCHING SUB- SYSTEM [PB-1; CL.1.1, P 131, ANNEX-2.1, P.155 & APPX- 1, P. 179] 2. CONTRACT PRICE INCLUDES CHARGES FOR INSTALLATION OF INDIVIDUAL COMPONENTS OVER A PERIOD OF 3 YEARS. [PB- 1; P. 193 TO 197, 211 TO 213 (INSTALLATION & TESTINA BASE , INST. & TESTINP. 7% OF HW/SW EXCLUDING SPARES). 232 TO 235, 254, 256] 3 PROVISION OF SERVICES IN THE NATURE OF GENERATION OF SSS DATABASE, TESTING OF THE DATA BASE USING THE TEST EXCHANGE AT GURGAON, INDIA & DELIVERY OF THE SAME._[PB - 1,ANNX - 7.2; P.311 - MODICOM U. BINOTTI [PB-1, P. 154] - FOR A PERIOD OF 3 YEARS. [PE 1, P. 181- 187] - SUPPLIER TO DELIVER TH PRODUCTS TO THE CUSTOMER THE PORT OF DESTINATION [PB- P. 135] TITLE TO PRODUCTS SUPPLIE SHALL PASS AT THE SAME TIM THAT RISK PASSES UNDER CL TERMS [PB-1, P. 138, CI- 5] - SUPPLIER WILL HAVE REPRESENTATIVE PRESENT FOR A INVENTORYING. [PB-1, P.308] SIEMENS (SPCNL) T PROVIDE SUPPORT SERVIC ON A 24 HOUR BASIS, 7 DAYS WEEK [PB-1, P.338] INCLUDIN 24 HOUR CALL OUT SERVICE SITE VISIT. 3 - 02 - 97 7-9-97 1 DESIGN, MANUFACTURE AND DELIVERY OF DIGITAL MICROWAVE SYSTEM [PB-1; ART-1, P.4 & 63] SCOPE OF THE SYSTEM IS THE SUPPLY, INSTALLATION AND COMMISSIONING OF MICROWAVE SYSTEMS. [PB-1; ANNEX- 2,P.37 & 110] ASSESSEE TO SUPPORT THE EQUIPMENTS FOR A PERIOD OF 10 YEARS. [PB-1; ANNEX- 2,P.37 & 110] AFTER COMP LETION OF ALL THE WORK, ASSESSEE WILL OFFER THIS SYSTEM FOR ACCEPTANCE BY BPL. WHO AFTER PERFORMING TESTS BPL U. BINOTTI [PB- 1, P.29 & 88] FINAL QUANTITIES OF TH EQUIPMENT WILL BE CONFIRME ON THE BASIS OF JOINT SURVE REPORTS OF THE ASSESSE AND BPL [PB-1; ART-4 0: P.7 & 66] - AFTER THE ARRIVAL OF TH EQUIPMENTS AT THE PORT DESTINATION, THE ASSESSE SHALL FURNISH TO BPL TH DETAILS OF THE QUANTITIES THE EQUIPMENT DELIVERED AN THE EQUIPMENTS SHALL B CHECKED JOINTLY BY REPRESENTATIVE OF TH ASSESSEE AND ONE OF BPL - 8- - 9- - 10- 12. IT SEEMS THE LD. DR HAS MISCONSTRUED THE RELEVA NT CLAUSES OF THE CONTRACTS. CLAUSE 15.1 OF THE AGREEMENT DATED 26.02 .1997 WITH BPL [PB - 2; P.522 & 411] & ANNEX - ILL [PB-2; P.5578.485] ARE IDENTICALLY WORDED WITH THAT OF THE SUPPLY AGREEMENT. ESPECIALLY, ALL THE ANTECEDENTS TO THE AWARD OF CONTRACT TO THE ASSESSEE STARTING FROM THE ISSUANCE OF RFQ BY TCL TILL THE ISSUANCE OF LOI BY TCL AND THE ACCEPTANCE OF SUCH LOI BY THE ASSESSEE AND SPCNL ARE THE SAME. 01 - 10 - 97 ASSESSEE APPOINTED SPCNL AS ITS SOLE AGENT FOR THE SALES PROMOTION OF SPECIFIED EQUIPMENTS (APDX-A) TO THE SPECIFIED CUSTOMERS (APDX-B) [PB-2; ART-1 ;P.615] AGREEMENT PROVIDES FOR ASSISTANCE AND COLLABORATION OF COMMERCIAL, TECHNICAL, ADMINISTRATIVE AND LEGAL NATURE CONCERNING ASSESSEES CONTRACTS WITH BPL, MODICOM, MOTOROLA FOR BPL US WEST, TATA, UTML, VSNL, TCL, MOTOROLA & SHYAM TELELINK. [PB-2; CL.2(F), P.616 & 625] DUTY AND OBLIGATIONS OF SPCNL TO THE ASSESSEE TO CONTINUE TILL THE COMPLETION OF ALL THE OBLIGATIONS ARISING OUT FROM THE CONTRACTS OF THE ASSESSEE WITH THE ABOVE CONTRACTS [PB-2; CL.2(F), P.616] DUTY AND OBLIGATIONS OF SPCNL TO THE ASSESSEE TO CONTINUE EVEN AFTER TERMINATION OF AGENCY AGREEMENT IF THE ASSESSEES OBLIGATIONS FOR PERFORMANCE OF CONTRACTS WITH THE ABOVE CUSTOMERS CONTINUE. [PB-2; CL.2(F); P.616] COMMISSION PAYABLE TO SPCNL IS LINKED TO THE CIF PRICE OF CONTRACTS AND CAN BE VARIED DEPENDING UPON ANY SUBSEQUENT VARIATIONS/RECOVERIES BY THE CUSTOMERS FROM THE CIF PRICE. [PB - 2; CL - 5; P.617 - 618] AGENCY AGREEM E NT WITH SPCNL COMPARISON OF THE EQUIPMENTS SPECIFIED IN APDX-A [PB-2; P.622] WITH THE SUPPLIES MADE TO VARIOUS CUSTOMERS SPECIFIED IN APDX- B [PB-2; P.623] REVEALS THAT THIS IS AN AGENCY AGREEMENT FOR SERVICES IN RESPECT OF SPECIFIC SUPPLIES TO SPECIFIC CUSTOMERS. / I - 11- MOBILE COMMUNICATIONS LIMITED, EXHIBITED AT PAGE NO . 12 OF PAPER BOOK NO. 1; CLAUSE 15.1 OF THE AGREEMENT DATED 17.09.199 7 WITH BPL MOBILE COMMUNICATIONS LIMITED, EXHIBITED AT PAGE NO. 71 OF PAPER BOOK NO. 1; CLAUSE 5 OF THE AGREEMENT DATED 26.11.1996, WITH MO DICOM NETWORK PRIVATE LIMITED, EXHIBITED AT PAGE NO. 138 OF PAPER BOOK NO. 1; ANNEXURE 2 OF THE AGREEMENT DATED 01.08.1997 WITH USHA MARTI N TELECOM LIMITED, EXHIBITED AT PAGE NO. 352 OF PAPER BOOK NO. 1; AND CLAUSE 16 OF THE AGREEMENT DATED 15.01.1998, WITH TATA COMMUNICATION LIMITED, EXHIBITED AT PAGE NO. 401 OF PAPER BOOK NO. 1 SHOW THAT SUPPLY WAS CONCLUDED WITH TITLE AND RISK IN THE COMPONENTS PAS SING ON TO THE CONCERNED TELECOM OPERATORS OFFSHORE. 13. THE REVENUE HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF M/S LARSON A ND TOUBRO LTD. V. STATE OF ANDHRA PRADESH [2015] TIOL 3055 WHICH APPEARS TO BE MISPLACED IN AS MUCH AS IN THAT CASE, THE CONTRACT IN PLACE DID NOT SPECIFY THAT TITLE PASSED OUTSIDE INDIA, WHEREAS, IN THE CA SE IN HAND, AND AS MENTIONED ELSEWHERE, THE TITLE PASSED OFFSHORE. FU RTHER, THE CONSIDERATION FOR SUPPLY OF COMPONENTS WAS ALSO REC EIVED BY THE - 12- APPELLANT OFFSHORE. EVEN THE WARRANTY SERVICES TOW ARDS REPLACEMENT AS WELL AS MAINTENANCE WERE PERFORMED FROM THE FACILIT IES IN ITALY. 14. THE LD. DR POINTED OUT THAT THE EMPLOYEES OF TH E APPELLANT WERE CONSTANTLY VISITING INDIA FOR THE PURPOSE OF NEGOTI ATION AND SIGNING OF CONTRACTS. THE ASSESSEE FAILED TO FURNISH THE DETA ILS OF VISIT BY SUCH EMPLOYEES. 15. IN THIS CONTEXT, IT WOULD BE RELEVANT TO UNDERS TAND THE DATES OF SIGNING OF EACH SUCH CONTRACTS, WHICH CAN BE UNDERS TOOD FROM THE FOLLOWING CHART: S L NO PARTICULARS OF THE SUPPLY CONTRACT CONTRACT DATE 1. AGREEMENT WITH BPL MOBILE COMMUNICATIONS LIMITED 26.02.1997 2. AGREEMENT WITH BPL MOBILE COMMUNICATIONS LIMITED 17.09.1997 3. AGREEMENT WITH MODICOM NETWORK PRIVATE LIMITED 26.11.1996 4. AGREEMENT WITH USHA MARTIN TELECOM LIMITED 01.08.1997 5. AGREEMENT WITH TATA COMMUNICATION LIMITED 15.01.1998 - 13- 16. IT CAN BE SEEN FROM THE ABOVE THAT ALL THE CONT RACTS WERE SIGNED IN F.Y. 1997-98. THEREFORE, THE ALLEGATION OF THE DEP ARTMENT ON THE EXISTENCE OF A PE SHOULD FALL, BECAUSE, IF THE EXPA TRIATE EMPLOYEES WERE COMING FOR NEGOTIATION AND SIGNING OF CONTRACTS, TH ESE ACTIVITIES ARE NOT REVENUE GENERATING ACTIVITIES AND SINCE NO EXPATRIA TE EMPLOYEES VISITED IN THE SUBSEQUENT YEARS, ISSUE OF FIXED PE IN ANY CASE WOULD NOT ARISE. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF DIT V. ERICSSON A.B., NEW DELHI [2012] 343 ITR 470. 17. IT WOULD BE PERTINENT TO UNDERSTAND THE ROLE OF SPCNL. THE APPELLANT HAD ENTERED INTO AN AGREEMENT DATED 01.10 .1997 WITH ITS SISTER CONCERN, SPCNL, WHERE UNDER SPCNL WAS REQUIRED TO CARRY OUT MARKETING AND PROMOTIONAL ACTIVITIES; INFORM SMCS ABOUT THE P ROGRAMS AND PLANS OF VARIOUS PUBLIC BODIES, CORPORATIONS OR PRIVATE ENTI TIES; CALL FOR TENDERS; ENABLE COMMERCIAL, TECHNICAL, ADMINISTRATIVE AND LE GAL SUPPORT; ETC. FOR THESE SERVICES RENDERED, SPCNL WAS REMUNERATED ON A RMS LENGTH BASIS. - 14- 18. ON 01.10.1997, SPCNL ALSO ENTERED INTO INDEPEND ENT CONTRACTS WITH THE TELECOM OPERATORS IN INDIA FOR UNDERTAKING INST ALLATION, TESTING AND COMMISSIONING OF THE COMPONENTS SUPPLIED TO THEM BY THE APPELLANT. IN ADDITION TO THESE ACTIVITIES, THE SCOPE OF ACTIVITI ES PERFORMED BY SPCNL ALSO ENCOMPASSED MANUFACTURING, SALE AND TRADING OF A WIDE RANGE OF TELECOMMUNICATION EQUIPMENT, SUCH AS SWITCHING EQUI PMENT, OPTICAL TRANSMISSION EQUIPMENT, INTERNET BROADBAND EQUIPMEN T, ETC. SPCNL ENTERED INTO AN AGREEMENT WITH BPL MOBILE COMMUNICA TIONS ON 2.6.1997 AND WITH TATA COMMUNICATION LTD ON 13.01.1998. 19. THE REVENUE HAS CONSTANTLY REPEATED THAT INSTAL LATION, TESTING AND COMMISSIONING, WERE PERFORMED EITHER BY THE TELECOM OPERATORS THEMSELVES OR BY SPCNL. THESE CERTIFICATES ARE PLA CED AT PAGES 1027- 1032 OF PAPER BOOK NO. 4, STATING THAT PRE-NETWORK AND PRE-INSTALLATION SERVICES AS WELL AS INSTALLATION, TESTING AND COMMI SSION OF THE HARDWARE COMPONENTS WAS DONE BY SPCNL UNDER INDEPENDENT CONT RACTS. IN FACT, THE CERTIFICATE ISSUED BY USHA MARTIN TELECOM LIMIT ED, WHICH IS AT PAGE NO. 1026 OF PAPER BOOK NO. 4 STATES THAT PRE-NETWOR K AND PRE-INSTALLATION SERVICES AS WELL AS INSTALLATION, TESTING AND COMMI SSION OF THE HARDWARE COMPONENTS WAS DONE BY USHA MARTIN TELECOM LIMITED ITSELF. - 15- 20. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE TH AT SPCNL WAS SEPARATELY BEING REMUNERATED BY THE ABOVE TELECOM O PERATORS IN INDIA FOR THE SERVICES RENDERED BY IT. IN FACT, IN THE CONTR ACT BETWEEN SPCNL AND BPL MOBILE COMMUNICATIONS LIMITED, SEPARATE CONSIDE RATION FOR PROVIDING THE INSTALLATION AND OTHER SERVICES HAS SPECIFICALL Y BEEN PROVIDED FOR, WHICH CAN BE SEEM FROM CLAUSE 9 OF THE SERVICE CONT RACT, EXHIBITED AT PAGE NO. 579 OF PAPER BOOK NO. 2. 21. THE LD. DR HAS VEHEMENTLY STATED THAT ANY PORTI ON OF REMUNERATION RELATING TO THE SERVICE OF INSTALLATION, MAINTENANC E AND COMMISSIONING WAS EMBEDDED IN THE SUPPLY CONTRACT. 22. ANOTHER FACT WHICH HAS BEEN HIGHLIGHTED BY THE LD. DR IS THAT THE APPELLANT HAD ESTABLISHED A LIAISON OFFICE [LO] IN INDIA ON 03.11.1997. THE FACT IS THAT THE SAME WAS SHUT DOWN ON 31.01.20 00. AS THE LO CAME INTO EXISTENCE ONLY ON 03.11.1997 AND ONLY TWO CONT RACTS WERE SIGNED AFTER THAT DATE WHICH CAN BE SEEN FROM THE CHART OF THE DATE OF EXECUTION OF CONTRACTS EXHIBITED ELSEWHERE. - 16- 23. MOREOVER, THE ONLY ALLEGATION OF THE ASSESSING OFFICER IS THAT THE LO HAS ASSISTED IN THE NEGOTIATION AND SIGNING OF THE CONTRACTS. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. 96 TTJ 1 ITSELF HAD HELD THAT AN LO DOES NOT TANTAMOUNT TO E XISTENCE OF A PE IN TERMS OF ARTICLE 5 OF THE DTAA. 24. THE LD. DR HAS PLACED STRONG RELIANCE ON THE DE CISION OF THE TRIBUNAL IN THE CASE OF HITACHI HITECH TECHNOLOGIES ITA NOS. 2683 TO 2688/DEL/2015 AND POINTED OUT THAT THE TRIBUNAL HAS HELD THAT THE EXISTENCE OF THE LO CONSTITUTED A PE OF HITACHI HIT ECH TECHNOLOGIES. 25. IN OUR CONSIDERED OPINION, THE DECISION IN THE CASE OF HITACHI HITECH TECHNOLOGIES [SUPRA] WAS DELIVERED ON DIFFERENT SET OF FACTS WHEREIN PURSUANT TO SURVEY OPERATION, CERTAIN FACTS WERE UN EARTHED AND ON THE BASIS OF THESE FACTS, THE TRIBUNAL CAME TO THE CONC LUSION THAT THE LO CONSTITUTED A PE OF HITACHI HITECH TECHNOLOGIES. T HE CASE IN HAND IS DEVOID OF ALL THOSE FACTS AND HENCE THE SAID DECISI ON OF THE TRIBUNAL WOULD DO NO GOOD TO THE REVENUE. - 17- 26. AS MENTIONED ELSEWHERE, THE REVENUE HAS STRONGL Y ALLEGED THAT TITLE IN COMPONENTS PASSED TO TELECOM OPERATORS IN INDIA ONSHORE. SMCS HAD A SIGNIFICANT ROLE TO PLAY IN THE PROCESS OF CARRYING OUT ACCEPTANCE TESTS AND THE SAME WAS DONE BY SPCNL ON BEHALF OF THE APPELLA NT. 27. ANOTHER POINT RAISED BY THE LD. DR IN SUPPORT O F THE ASSESSMENT ORDER IS THAT IT IS DIFFICULT TO ENVISAGE THAT THE APPELLANT WOULD HAVE CHOSEN TO REMAIN UNREPRESENTED EITHER BY ITSELF OR THROUGH A REPRESENTATIVE DURING A CRUCIAL TEST ON WHICH THE F UNCTIONING OR NON FUNCTIONING OF A COMPONENT SUPPLIED BY IT WAS TO BE DETERMINED. ACCORDING TO THE LD. DR, THE APPELLANT ENTRUSTED TH E RESPONSIBILITY OF TESTING FOR DEFECTS ON SPCNL INDICATES THAT SPCNL W AS THE AGENT OF THE APPELLANT AND THE ROLE OF SMCS WAS NOT LIMITED TO S UPPLY OF COMPONENTS FROM ABROAD. IN FACT, IT EXTENDED TO ENSURING THAT THE SYSTEM WAS FULLY FUNCTIONAL AFTER INSTALLATIONS. 28. ANOTHER ALLEGATION OF THE REVENUE IS THAT CONTR ACTS BETWEEN SPCNL AND THE TELECOM OPERATORS ARE IN THE SAME LINE BETW EEN THE APPELLANT AND THE TELECOM OPERATORS. IT IS THE SAY OF THE LD . DR THAT THE APPELLANT - 18- HAS PARTED WITH SOME OF ITS RESPONSIBILITIES BY GET TING SEPARATE CONTRACT SIGNED BETWEEN THE TELECOM OPERATORS AND SPCNL. 29. ACCORDING TO THE LD. DR, IT IS NOT POSSIBLE THA T ANY TELECOM OPERATOR ENTERING INTO AN ARRANGEMENT WITH THE APPELLANT FOR SUPPLY OF COMPONENTS WOULD ENTER INTO AN ARRANGEMENT FOR INST ALLATION WITH ANY OTHER COMPANY. THEREFORE, ENGAGEMENT OF SPCNL WAS DEPENDENT AND CONDITIONAL ON SUPPLY OF COMPONENTS BY THE APPELLAN T. THESE EVIDENCES CLEARLY SHOW THAT THE APPELLANT HAD LOCAL PRESENCE IN THE FORM OF SPNCL IN INDIA. 30. SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW, THE LD. DR STATED THAT CONTRACTS INVOLVING HIGH AMOUNTS, LIKE IN THE PRESENT CASE, CAN BE NEGOTIATED AND CONCLUDED WITHOUT ANY FACE TO FACE I NTERACTION. 31. REFERRING TO THE EXECUTION OF POWER OF ATTORNEY ( POA ) THE LD. DR STATED THAT THE APPELLANT HAS FAILED TO SUBSTANTIAT E WHY CONTRACTS COULD NOT BE SIGNED IN ITALY. IT IS THE SAY OF THE LD. D R THAT THE CONTRACTS WERE NEGOTIATED AND SIGNED IN INDIA ITSELF. - 19- 32. AS MENTIONED ELSEWHERE, THE LD. CIT(A) HAD SET ASIDE THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1989-99 STATIN G THAT SUPPLY OF HARDWARE COULD NOT BE TAXED IN INDIA IN THE ABSENCE OF PE OF THE APPELLANT IN INDIA. DESPITE THIS, THE ASSESSING OF FICER AT THE TIME OF PASSING OF ASSESSMENT ORDERS FOR ASSESSMENT YEARS 1 998-99 TO 2002-03, SIMPLY DISREGARDED THE ORDER PASSED BY THE APPELLAT E AUTHORITY WHICH WAS ON IDENTICAL SET OF FACTS. THE LD. DR, IN SUPPORT OF SUBSEQUENT ORDER STATED THAT IN ASSESSMENT YEAR 1998-99 THERE WAS NO ANALYSIS DONE BY THE LD. CIT(A) IN RESPECT OF CONTRACTUAL TERMS. THIS A SSERTION BY THE LD. DR IS ILL-FOUNDED. A PERUSAL OF THE ORDER OF THE LD. CIT (A) FOR ASSESSMENT YEAR 1998-99 CLEARLY SHOWS THAT HE HAD CONSIDERED THE CO NTRACTS AND HAD CAREFULLY SCRUTINIZED THE SAME WHILE HOLDING IN FAV OUR OF THE ASSESSEE. 33. COMING TO THE ISSUE RELATING TO POWER OF ATTORN EY, FACTS ON RECORD SHOW THAT THE POA DATED 13.09.1997 WAS NOT EXECUTED FOR SIGNING OF CONTRACT DATED 26.02.1997 ENTERED INTO BETWEEN SPNC L AND BPL MOBILE COMMUNICATIONS. THE CONTRACT DATED 26.02.1997 WAS SIGNED BY SHRI BINOTTI UNDER A SEPARATE POA DATED 16.02.1997. THIS IS EVIDENT FROM THE CONTRACT DATED 26.02.1997, EXHIBITED AT PAGE NO. 2 OF PAPER BOOK NO. 1, FOR WHICH THE POA WAS EXECUTED ON 16.02.1997. THE SAID POA HAS ALSO - 20- BEEN EXHIBITED AT PAGE NO. 1014 OF PAPER BOOK NO. 4 . CONTRACT DATED 17.09.1997, AT PAGE NO. 61 OF PAPER BOOK NO. 1, POA WAS EXECUTED ON 15.11.1997. THIS POA HAS ALSO BEEN EXHIBITED AT PA GE NO. 1018 OF PAPER BOOK NO. 4. IN OUR CONSIDERED VIEW, SIGNING OF THE CONTRACT IS MERELY PUTTING SIGNATURE ON A PAPER AND DOES NOT, IN ANY M ANNER, LEAD TO AN INFERENCE OF PE OR BUSINESS CONNECTION. 34. AS MENTIONED ELSEWHERE, THE REVENUE HAS ALLEGED THAT THE APPELLANT HAS FAILED TO PROVIDE INFORMATION WITH RE SPECT TO EMPLOYEES WHO VISITED INDIA DURING THE SUBJECT AYS WHICH PREC LUDED THE REVENUE TO ANALYSE WHETHER THE APPELLANT HAS A PE IN INDIA. W E HAVE ALREADY POINTED OUT THE DATES OF EXECUTION OF CONTRACTS FRO M WHICH IT CAN BE SEEN THAT ALMOST ALL THE CONTRACTS WERE SIGNED IN F.Y. 1 997-98. SINCE ALL THE CONTRACTS WERE ENTERED INTO BETWEEN 26.02.1997 AND 15.01.1998, THERE WAS NO OCCASION FOR ANY EMPLOYEE OF THE APPELLANT T O VISIT INDIA THEREAFTER. 35. A THOROUGH UNDERSTANDING OF THE FACTS INDICATE THAT THE ROLE OF THE APPELLANT WAS LIMITED TO MERE SUPPLY OF HARDWARE CO MPONENTS DIRECTLY FROM ITALY IN SUCH A MANNER THAT SALES STOOD CONCLU DED, TITLE TRANSFERRED - 21- AND CONSIDERATION RECEIVED OUTSIDE INDIA. EVEN THE APPELLANT WAS REQUIRED TO REPAIR OR REPLACE FAULTY EQUIPMENT DURI NG THE WARRANTY PERIOD. BUT FOR THIS, THE TELECOM OPERATOR CONCERN ED WAS REQUIRED TO SEND THE FAULTY EQUIPMENT TO THE FACILITY OF THE AP PELLANT IN ITALY. 36. IT IS PERTINENT TO UNDERSTAND CLEARLY THAT ONSH ORE INCOME FROM ONSHORE SERVICES, I.E., UNDERTAKING INSTALLATION, T ESTING AND MAINTENANCE BY SPCNL AND INCOME EARNED BY SPCNL THROUGH PERFORM ANCE OF MARKETING AND PROMOTIONAL ACTIVITIES FOR THE APPELLANT WERE V OLUNTARILY OFFERED TO TAX IN INDIA. 37. SUPPORTING THE BUSINESS CONNECTION OF THE APPEL LANT IN INDIA, THE LD. DR POINTED OUT THAT CUSTOMS CLEARANCE, TRANSPORTATI ON, WAREHOUSING AND STORAGE FACILITIES WERE PROVIDED BY THE APPELLANT I N RESPECT OF COMPONENTS, TITLE IN WHICH ALREADY VESTED WITH THE TELECOM OPERATORS IN INDIA. FACTS ON RECORD SHOW THAT THESE SERVICES WE RE PROVIDED THROUGH INDEPENDENT CLEARING & FORWARDING AGENTS ( C&F AGENTS ), WHO WERE REMUNERATED FOR THE SERVICES RENDERED BY THEM UNDER SEPARATE CONTRACTS. THE CERTIFICATE OBTAINED BY C&F AGENTS ARE EXHIBITE D AT PAGE NO. 856 OF PAPER BOOK NO. 3. - 22- 38. CONSIDERING THE FACTS IN TOTALITY, WE HAVE NO H ESITATION TO HOLD THAT NO BUSINESS CONNECTION CAN BE SAID TO HAVE BEEN EST ABLISHED, AND THEREFORE, NO FURTHER INCOME CAN BE ATTRIBUTED TO I NDIA. OUR VIEW IS SUPPORTED BY THE CIRCULAR NO. 23 DATED 23.07.1969 I SSUED BY THE CENTRAL BOARD OF DIRECT TAXES, WHEREIN IT HAS BEEN STATED T HAT NO LIABILITY WILL ARISE TO A NON-RESIDENT WHERE TRANSACTION OF SALE I S ON PRINCIPAL TO PRINCIPAL BASIS SINCE THE TRANSACTION OF SUPPLY OF COMPONENTS BY THE APPELLANT ARE ON ITS OWN ACCOUNT, UNAFFECTED BY THE SERVICES TO BE RENDERED BY SPCNL. THIS ITSELF WOULD TAKE THE TRAN SACTION OF SUPPLY OF COMPONENTS OUTSIDE THE PURVIEW OF SECTION 9(1)(I) O F THE ACT. 39. IN SO FAR AS THE ISSUE RELATING TO FIXED PLACE PE IS CONCERNED, THE ALLEGATION IS THAT SUPPLY OF COMPONENTS IS LINKED T O A FIXED PLACE AND ALSO THE ACTIVITY OF INSTALLATION, COMMISSIONING AND MAI NTENANCE. IN OUR UNDERSTANDING OF THE FACTS, SINCE THE OFFSHORE CONT RACT FOR SUPPLY OF COMPONENTS CANNOT BE READ TOGETHER WITH THE ONSHORE CONTRACT OF RENDERING INSTALLATION, COMMISSIONING AND MAINTENAN CE, AND HAS TO BE SEEN IN THE LIGHT OF THE PROVISIONS OF INDIA- ITAL Y DTAA AND TESTS SET OUT IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF FORMULA [SUPRA] - 23- AND WHICH ARE (A) PLACE OF BUSINESS (B) DISPOSAL TE ST AND (C) VIRTUAL PROJECTION. 40. CONSIDERING THE FACTS ON RECORD, SPCNL SHOULD N OT BE CONSIDERED A FIXED PLACE FROM WHICH BUSINESS OF THE APPELLANT WA S WHOLLY OR PARTLY CARRIED OUT. THE BUSINESS OF SPCNL IS NOT DEPENDEN T ON THE APPELLANT AS THE FACTS SHOW THE VARIANCE IN THE SCOPE OF ACTIVIT IES NOR IT CAN BE SAID THAT SPCNL IS AT THE DISPOSAL OF THE APPELLANT. 41. WE WILL NOW ADDRESS TO THE ISSUE OF INSTALLATIO N PE. THE ALLEGATION OF THE ASSESSING OFFICER IS THAT SINCE THE APPELLAN T IS ENGAGED IN THE ACTIVITY OF MANUFACTURE AND SUPPLY OF COMPONENTS AS WELL AS HAD OTHER OBLIGATIONS INCLUDING DELIVERY, ACCEPTANCE TEST AND INSTALLATION, ASSEMBLY OR SUPERVISION ON SITES, WHICH ACTIVITIES CONTINUED FOR OVER 6 MONTHS, THE SAID ACTIVITIES CONSTITUTED PE UNDER THE TERMS OF A RTICLE 5(2)(J) OF THE INDIA ITALY, DTAA. 42. AS MENTIONED ELSEWHERE, A PERUSAL OF THE SUPPLY CONTRACTS BETWEEN THE APPELLANT AND THE TELECOM OPERATORS IN INDIA WI LL INDICATE THAT THE ROLE OF THE APPELLANT WAS LIMITED TO MERE SUPPLY OF HARDWARE COMPONENTS - 24- DIRECTLY FROM ITALY. THE APPELLANT WAS NEITHER RES PONSIBLE FOR, NOR UNDERTAKES INSTALLATION, TESTING AND COMMISSIONING, THE SAME BEING THE RESPONSIBILITY OF THE TELECOM OPERATORS THEMSELVES, WHO EITHER UNDERTOOK THE SAME THEMSELVES OR HAD THE OPTION OF APPOINTING SPCNL. 43. CONSIDERING THESE FACTS IN THE LIGHT OF THE HON 'BLE HIGH COURT OF DELHI IN THE CASE OF NORTEL NETWORKS INDIA INTERNAT IONAL INC., [SUPRA], IT CAN BE SAID THAT THERE WAS NO INSTALLATION PE OF TH E APPELLANT. WHETHER THERE IS A DEPENDENT AGENT PE 44. THIS IS IN REFERENCE TO ARTICLE 5(4) OF THE IND IA ITALY, DTAA AND THE SAME WOULD APPLY ONLY WHEN A NON-RESIDENT IS ACTING IN INDIA, THROUGH AN AGENT, OTHER THAN AN AGENT OF INDEPENDENT STATUS ON FULFILLING THE FOLLOWING CONDITIONS: (A) THE AGENT AS AFORE-STATED HABITUALLY EXERCISES IN INDIA, THE AUTHORITY TO CONCLUDE CONTRACTS; - 25- (B) THE AGENT MAINTAINS A STOCK OF GOODS OR MERCHANDISE S FROM WHICH IT REGULARLY DELIVERS GOODS OR MERCHANDISES O N BEHALF OF THE SAID NON-RESIDENT; (C) THE AGENT SECURES ORDERS, WHOLLY OR ALMOST WHOLLY , ON BEHALF OF THE SAID NON-RESIDENT OR FOR AN ENTERPRISE OR OTHER ENTERPRISES CONTROLLING, CONTROLLED BY OR SUBJECT TO THE COMMON CONTROL OF THE SAID NON-RESIDENT. 45. THE REVENUE HAS KEPT ON ALLEGING THAT SPCNL WAS CONTROLLED BY THE APPELLANT BUT AT THE SAME TIME, NOTHING HAS BEEN BR OUGHT ON RECORD TO EVIDENCE AS TO HOW THE AFOREMENTIONED CONDITIONS GE T SATISFIED SO AS TO RESULT IN FORMATION OF DAPE OF THE APPELLANT IN IND IA. IN FACT, AND AS MENTIONED ELSEWHERE, ONE OF THE ALLEGATIONS OF THE REVENUE WAS THAT THE EMPLOYEES OF THE APPELLANT FREQUENTLY VISITED INDIA FOR NEGOTIATIONS AND SIGNING OF CONTRACTS WHICH ITSELF SHOWS THAT SPCNL HAD NO AUTHORITY TO CONCLUDE CONTRACTS. - 26- 46. AS HAS BEEN ELABORATELY DISCUSSED ELSEWHERE, OB LIGATION TO CARRY OUT INSTALLATION, COMMISSIONING AND MAINTENANCE UNDER T HE SERVICES CONTRACT WAS BY WAY OF SEPARATE CONTRACTS BETWEEN SPCNL AND THE TELECOM OPERATORS. SPCNL CANNOT BE REGARDED AS DAPE OF THE APPELLANT IN INDIA. 47. CONTRACTS BETWEEN THE APPELLANT AND TELECOM OPE RATORS SHOW THAT THE APPELLANT WAS NOT EVEN RESPONSIBLE FOR PERFORMI NG PRE-NETWORK SURVEYS OR SOFTWARE UPDATES. THE APPELLANT DOES NO T HOLD ANY EQUITY CAPITAL IN SPCNL AND THE SPHERE OF ACTIVITIES PERFO RMED BY SPCNL WAS MUCH BROADER THAN THOSE ENVISAGED UNDER THE AGREEME NT ENTERED INTO BETWEEN SMCS AND SPCNL. 48. ASSUMING, YET NOT ACCEPTING THAT THE INSTALLATI ON ACTIVITIES WERE UNDERTAKEN BY SPCNL AT THE BEHEST OF THE APPELLANT, THE SAME WOULD STILL NOT RENDER THE INCOME OF THE APPELLANT TO BE TAXABL E IN INDIA, SINCE THE SUPPLY OF HARDWARE COMPONENTS, I.E., THE TAXABLE AC TIVITY, WAS COMPLETED BEFORE THE INSTALLATION ACTIVITIES. - 27- 49. THE LD. DR HAD PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE DAIKIN INDUSTRIES LTD., GURGAON [ 2018 TII- 165, WHICH IS DISTINGUISHABLE ON FACTS, BECAUSE IN THAT CASE T HE INDIAN ENTITY INVOLVED WAS IDENTIFYING CUSTOMERS, APPROACHING CUSTOMERS, N EGOTIATING PRICES, AND FINALIZING PRODUCTS SOLD BY IT IN THE CAPACITY OF A DISTRIBUTOR, AS WELL BY THE NON-RESIDENT ENTITY THEREIN. MOREOVER, IN T HAT CASE, THE SAID INDIAN ENTITY HAD FAILED TO ESTABLISH HOW IT WAS EC ONOMICALLY AND OTHERWISE INDEPENDENT. 50. THE LD. DR HAS RELIED ON THE DECISION OF THE TR IBUNAL IN THE CASE OF SHANGHAI ELECTRONIC GROUP CO. LTD. [2010] 2010 TI OL 79 WHICH IS ALSO DISTINGUISHABLE ON FACTS AS IN THAT CASE, THE NON-R ESIDENT ENTITY ALSO INDULGED IN ENABLING SUPERVISORY SERVICES IN RESPEC T OF ERECTION, TESTING AND COMMISSIONING IN ADDITION TO MANUFACTURING BOIL ERS, TURBINE AND GENERATOR EQUIPMENTS. 51. IT WAS IN THIS CONTEXT THAT THE OFFSHORE CONTRA CT PERTAINING TO SUPPLY OF EQUIPMENTS AND THE ONSHORE CONTRACT PERTAINING T O PROVISION OF SERVICES WERE INEXTRICABLY LINKED. IN ADDITION TO T HIS, THERE WAS A CLEAR - 28- FINDING THAT CONTRACTS WERE NEGOTIATED AND CONCLUDE D BY A TEAM OF PERSONS IN INDIA, WHICH FACT FINDING IS MISSING IN THE CASE IN HAND. 52. THE ISSUE OF CHARGEABILITY OF INTEREST U/S 234B OF THE ACT ON THE FACTS OF THE CASE IN HAND HAS BEEN DECIDED BY THE H ON'BLE HIGH COURT OF DELHI IN FAVOUR OF THE ASSESSEE IN THE CASE OF GE P ACKAGED POWER INC. 373 1TR 65, WHEREIN IT HAS BEEN HELD THAT NO INTEREST UNDER SEC TION 234B OF THE ACT CAN BE LEVIED ON THE ASSESSEE-PAYEE ON THE GROUND OF NON- PAYMENT OF ADVANCE TAX BECAUSE THE OBLIGATION WAS U PON THE PAYER TO DEDUCT THE TAX AT SOURCE BEFORE MAKING REMITTANCES TO THEM. THE RELEVANT EXTRACTS OF THE DECISION ARE REPRODUCED HE REUNDER: 22. THIS COURT, THEREFORE, HOLDS THAT JACOBS (SUPRA ) APPLIES IN SUCH SITUATIONS; ALCATEL LUCENT (SUPRA) CAN BE EXPLAINED AS A DECISION TURNING UPON ITS FACTS; ITS SEEMINGLY WIDE OBSERVATIONS, LI MITED TO THE CIRCUMSTANCES OF THE CASE. THIS COURT, THEREFORE, H OLDS THAT THE VIEW TAKEN BY ITAT WAS CORRECT; THE PRIMARY LIABILITY OF DEDUCTING TAX (FOR THE PERIOD CONCERNED, SINCE THE LAW HAS UNDERGONE A CHANGE AFTER THE FINANCE ACT, 2012) IS THAT OF THE PAYER. THE PAYER WILL BE AN ASSESSEE IN DEFAULT, ON FAILURE TO DISCHARGE THE OBLIGATION TO DEDUCT TAX UNDER SECTION 201 OF THE ACT. - 29- 27. FOR THE ABOVE REASONS, THIS COURT FINDS THAT NO INTEREST IS LEVIABLE ON THE RESPONDENT ASSESSEES UNDER SECTION 234B, EVE N THOUGH THEY FLED RETURNS DECLARING NIL INCOME AT THE STAGE OF R EASSESSMENT. THE PAYERS WERE OBLIGED TO DETERMINE WHETHER THE ASSESS EES WERE LIABLE TO TAX UNDER SECTION 195(1), AND TO WHAT EXTENT, BY TA KING RECOURSE TO THE MECHANISM PROVIDED IN SECTION 195(2) OF THE ACT . THE FAILURE OF THE PAYERS TO DO SO DOES NOT LEAVE THE REVENUE WITH OUT REMEDY; THE PAYER MAY BE REGARDED AN ASSESSEE-IN-DEFAULT UNDER SECTION 201 AND THE CONSEQUENCES DELINEATED IN THAT PROVISION WILL VISIT THE PAYER. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED WITH OUT ANY ORDER AS TO COSTS. ' IT MAY BE POINTED OUT THAT THE FINANCE ACT, 2012, W.E.F. 1.4.2012 ADDED PROVISO BELOW SECTION 209(1)(D) OF THE ACT. BUT THE SAID PROVISO IS APPLICABLE FROM ASSESSMENT YEAR 2013-14 AND, THE REFORE, PROSPECTIVE IN OPERATION. 28. IN OUR UNDERSTANDING, THE INSERTION OF THE P ROVISO CANNOT BE CONSIDERED TO HAVE RETROSPECTIVE EFFECT SO AS TO EX POSE A NON- RESIDENT COMPANY TO LEVY OF INTEREST U/S 234B OF TH E ACT FOR THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2013-14. IN THE LIGHT OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO NOT CHARG E INTEREST U/S 234B OF THE ACT. - 30- RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE HOLD THAT NO INTEREST IS LEVIABLE U/S 234B OF THE ACT. ACCOR DINGLY, WE DIRECT THE ASSESSING OFFICER NOT TO CHARGE INTEREST U/S 234B O F THE ACT. 53. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, THE ISSUES MENTIONED AT PARA 7 HEREINABOVE, ARE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. MEANING THEREBY, THAT ALL THE APPEALS BY THE ASSESSEE ARE ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ITA NO. 2810/DEL/2003 [ASSESSEES APPEAL] 54. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN TAXING INCOME FROM SUPPLY OF SOFTWARE TO INDIAN PAR TIES AS INCOME OF THE APPELLANT. 55. THE QUARREL IS IN RESPECT OF CONSIDERATION RECE IVED BY THE ASSESSEE FROM OFFSHORE SUPPLY OF HARDWARE COMPONENTS WHICH I MBIBED THE SUPPLY OF SOFTWARE. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY ITS INCOME - 31- OR CONSIDERATION RECEIVED BY IT FOR LICENCING TO US E SOFTWARE SHOULD NOT BE TAXED AS ROYALTY. 56. THE ASSESSEE MADE A DETAILED SUBMISSION CLAIMIN G THAT IT HAS ACTUALLY SOLD ONLY COPYRIGHTED ARTICLE. THIS CONTE NTION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE ASSESSING OFFICER WHO WAS OF THE FIRM BELIEF THAT WHAT HAS BEEN CHARGED AS CONSIDERATION IS LICE NSING FEES FOR RIGHT TO USE SOFTWARE. ACCORDING TO THE ASSESSING OFFICER, WHAT HAS BEEN TRANSFERRED IS NOT SOFTWARE ITSELF BUT THE RIGHT TO USE THE SOFTWARE. 57. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE IS RECEIVING CONSIDERATION FOR LICENSING USE OF SUCH SOFTWARE AN D THUS THE CONSIDERATION RECEIVED IS TAXABLE AS ROYALTY WITH IN THE DEFINITION OF ROYALTY UNDER ARTICLE 13 OF THE DTAA. THE ASSESS ING OFFICER FURTHER OBSERVED THAT THE COMPUTER SOFTWARE SUPPLIED BY THE ASSESSEE CONTAINS INFORMATION CONCERNING COMMERCIAL USE OF THE SOFTWA RE. THE SOFTWARE CONTAINS FACILITIES SUCH AS, CALL WAITING, CALL DIV ERT, VOICE MAIL, BILLING, SHORT MESSAGES, FAX, CONFERENCE AND NUMEROUS OTHER FEATURES WHICH ARE BEING USED BY THE CELLULAR OPERATORS FOR COMMERCIAL LY EXPLOITING THE SERVICE PROVIDED. - 32- 58. DRAWING SUPPORT FROM THE DEFINITION GIVEN TO EX PLANATION 2 TO SECTION 9(1)(VI) OF ROYALTY, THE ASSESSING OFFICE R FORMED A BELIEF THAT THE SCOPE OF DEFINITION IS MUCH WIDER IN ITS AMBIT THAN THE DEFINITION GIVEN IN DTAA. 59. THE ASSESSING OFFICER FINALLY CONCLUDED BY HOLD ING THAT THIS ROYALTY HAS NOT BEEN ACCRUED TO THE ASSESSEE THROUGH PE AS PER PARA 5 OF ARTICLE 13 OF DTAA BUT THE ROYALTIES HAVE BEEN RECEIVED DIR ECTLY FROM INDIAN CUSTOMERS TO WHOM THE ASSESSEE HAS GRANTED THE LICE NCE TO USE THE SOFTWARE. THEREFORE, SUCH ROYALTY IS NOT TAXABLE A S BUSINESS INCOME OF THE ASSESSEE AS PER ARTICLE 7 OF THE DTAA. RATHER, IT IS TAXABLE UNDER ARTICLE 13 OF THE DTAA. THE ASSESSING OFFICER, ACC ORDINGLY, COMPUTED THE LIABILITY OF THE ASSESSEE AS UNDER: INCOME FROM SUPPLY OF HARDWARE 9,90,36,601/- TAX ON ABOVE @ 48% 4,75,37,568/- TAX ON SUPPLY OF SOFTWARE 7,58,33,736/- 60. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. - 33- 61. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET, STATED THAT THE IMPUGNED ISSUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF ZTE CORPORATION 392 I TR 80. 62. THE LD. DR COULD NOT BRING ANY DISTINGUISHING D ECISION IN FAVOUR OF THE REVENUE. 63. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW AND HAVE ALSO CONSIDERED THE DECI SION OF THE HON'BLE HIGH COURT OF DELHI [SUPRA]. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. SIMILAR ISSUE WAS CONSID ERED AND DECIDED BY THE HON'BLE HIGH COURT OF DELHI [SUPRA]. THE RELEV ANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: 20. THE MISCONCEPTION THAT THE REVENUE HARBORS STE MS FROM ITS FLAWED APPRECIATION OF A COPYRIGHT LICENSE. TRUE, ' COPYRIGHT' IS NOT DEFINED; YET WHAT WORKS ARE CAPABLE OF COPYRIGHT PR OTECTION IS SPELT OUT IN THE COPYRIGHT ACT. SECTIONS 13 AND 14 OF THE COPYRIGHT ACT FLESH OUT THE ESSENTIAL INGREDIENTS THAT MAKE C OPYRIGHT A PROPERTY RIGHT. MORE PARTICULARLY, SECTION 14 STATES AS FOLLOWS: - 34- '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 DOING OF ANY OF TH E FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREO F, 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; (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 I N SUB CLAUSES (I) TO (VI) (B) IN THE CASE OF A COMPUTER PROGRAMME,- - 35- (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 N OT 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 TW O 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 SUB CLAUSES (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; - 36- (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; (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 COPY WHICH HAS B EEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN CIRCULATION .' THUS, SECTION 14 CATEGORICALLY PROVIDES THAT COPYRIGHT 'MEANS THE EXCLUSIVE RIGHT TO DO OR AUTHORIZING THE DOING OF A NY OF THE ACTS MENTIONED IN SECTION 14 (A) TO (E) OR ANY SUBSTANTIAL PART THEREOF'. THE CONTENT OF COPYRIGHT IN RESPECT OF CO MPUTER PROGRAMMES IS SPELT OUT IN SECTION 14 (B). A JOINT READING OF THE CONTROLLING PROVISIONS OF THE EARLIER PART OF SECTION 14 WITH CLAUSE (B) IMPLIES THAT IN THE CASE OF COMPUTER PROGRAMS, COPYRIGHT WOULD MEAN THE DOING OR AUTHORIZING THE DOING- IN RESPECT OF WORK (I.E. THE PROGRAMME) OR ANY SUBSTANTIAL PART THEREOF - (B) IN THE CASE OF A COMPUTER PROGRAMME,- - 37- (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 N OT THE ESSENTIAL OBJECT OF THE RENTAL. 21. THE REFERENCE TO CLAUSE (A) AND (B) MEANS THAT ALL THE RIGHTS WHICH ARE IN LITERARY WORKS I.E.'(I) TO REPRODUCE T HE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY ME DIUM BY ELECTRONIC MEANS;(II) TO ISSUE COPIES OF THE WORK T O THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION;(III) TO PERFOR M THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC;(IV) TO MAK E ANY CINEMATOGRAPH FILM OR SOUND RECORDING IN RESPECT OF THE WORK;(V) TO MAKE ANY TRANSLATION OF THE WORK;(VI) TO MAKE ANY A DAPTATION OF THE WORK;(VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB CLAUSES (I) TO (VI)' INHERE IN THE OWNER OF COPYRIG HT OF A COMPUTER PROGRAMME. THEREFORE, THE COPYRIGHT OWNER'S RIGHTS ARE SPELT OUT COMPREHENSIVELY BY THIS PROVISION. IN THE CONTEXT O F THE FACTS OF THIS CASE, THE ASSESSEE IS THE COPYRIGHT PROPRIETOR ; IT MADE AVAILABLE, THROUGH ONE TIME LICENSE FEE, THE SOFTWA RE TO ITS CUSTOMERS; THIS SOFTWARE WITHOUT THE HARDWARE WHICH WAS SOLD, IS USELESS. CONVERSELY THE HARDWARE SOLD BY THE ASSESS EE TO ITS - 38- CUSTOMERS IS ALSO VALUELESS AND CANNOT BE USED WITH OUT SUCH SOFTWARE. THIS ANALYSIS IS TO SHOW THAT WHAT WAS CO NVEYED TO ITS CUSTOMERS BY THE ASSESSEE BEARS A CLOSE RESEMBLANCE TO GOODS- SIGNIFICANTLY ENOUGH, SECTION 14 (1) TALKS OF SALE OR RENTAL OF A 'COPY'. THE QUESTION OF CONVEYING OR PARTING WITH C OPYRIGHT IN THE SOFTWARE ITSELF WOULD MEAN THAT THE COPYRIGHT PROPR IETOR HAS TO ASSIGN IT, DIVESTING ITSELF OF THE TITLE IMPLYING T HAT IT HAS DIVESTED ITSELF OF ALL THE RIGHTS UNDER SECTION 14 . THIS WOULD MEAN AN OUTRIGHT SALE OF THE COPYRIGHT OR ASSIGNMENT, UNDER SECTION 18 OF THE ACT. SECTION 16 OF THE COPYRIGHT 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) ENABLED THE USE OF THE HARDWARE SOLD. IT WAS NOT DISPUTED THAT WITHOUT THE SOFTWARE, HARDWARE USE WAS NOT POSSIBLE. THE MERE FACT THAT S EPARATE INVOICING WAS DONE FOR PURCHASE AND OTHER TRANSACTI ONS DID NOT IMPLY THAT IT WAS ROYALTY PAYMENT. IN SUCH CASES, T HE NOMENCLATURE (OF LICENSE OR SOME OTHER FEE) IS INDETERMINATE OF THE TRUE NATURE. NOR IS THE CIRCUMSTANCE THAT UPDATES OF THE SOFTWAR E ARE ROUTINELY GIVEN TO THE ASSESSEE'S CUSTOMERS. THESE FACTS DO N OT DETRACT FROM THE NATURE OF THE TRANSACTION, WHICH WAS SUPPL Y OF SOFTWARE, IN THE NATURE OF ARTICLES OR GOODS. THIS COURT IS A LSO NOT PERSUADED WITH THE SUBMISSION THAT THE PAYMENTS, IF NOT ROYAL TY, AMOUNTED TO PAYMENTS FOR THE USE OF MACHINERY OR EQUIPMENT. SUC H A SUBMISSION - 39- WAS NEVER ADVANCED BEFORE ANY OF THE LOWER TAX AUTH ORITIES; MOREOVER, EVEN IN ERICSON (SUPRA), A SIMILAR PROVIS ION EXISTED IN THE DTAA BETWEEN INDIA AND SWEDEN. 64. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON' BLE HIGH COURT [SUPRA] WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUG NED ADDITION. 65. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE, VIZ., ITA NO. 2810/DEL/2003 [A.Y 1998-1999] - ALLOWED ITA NO. 3147/DEL/2003 [A.Y 1999-2000] - ALLOWED ITA NO. 3148/DEL/2009 [A.Y 2000-2001] - ALLOWED ITA NO. 3149/DEL/2009 [A.Y 2001-2002] - ALLOWED ITA NO. 3150/DEL/2009 [A.Y 2002-2003] - ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 3012/DEL/2003 [A.Y 1998-1999] - DISMISSED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30.09 .2019. SD/- SD/- [SUDHANSHU SRIVASTAVA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH SEPTEMBER, 2019 VL/ - 40- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER