ADIT (IT)-2(1), MUMBAI V. M/s. RELIANCE INFOCOMM LTD( NOW MERGED WITH RELIANCE COMMUNICATIONS LTD), NAVI MUMBAI

ITA 5090/MUM/2008

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0594 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L1
• Next Hearing Date: 23-01-2017
• Assessment Year: misc
• Appeal Filed On: 11-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAG VYAS
• Assessee Lawyers: J D MISTRYDEEPAK JAIN
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL LBENCH MUMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH S OOD, JUDICIAL MEMBER ./I.T.A.S/5090/MUM/2008 DDIT ROOM NO.120, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD (IT) MUMBAI-400 038. VS. M/S. RELIANCE INFOCOMM LIMITED (NOW MERGED WITH M/S. RELIANCE COMMUNICATIONS LIMITED), H BLOCK 1 ST FLOOR, DHIRUBHAI AMBANI KNOWLEDGE CITY, NAVI MUMBAI-400 710. PAN:AACCR 7832 C ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY : S/SHRI PARAG VYAS- DR ASSESSEE BY: S/SHRI J.D. MISTRY/DEEPAK JAIN / DATE OF HEARING: 10/01/2018 / DATE OF PRONOUNCEMENT: 07/02/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 12/05/2008 OF CIT(A)XXX I, MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.THE ASSESSEE HAD PURCH ASED TELECOMMUNICATION SOFTWARE FROM M/S. ATRICA IRELAND LTD.IT MADE AN APPLICATION TO THE AO TO SEND THE REMITTANCES TO IRELAND WITHOUT DEDUCTING TAX AT SOURCE.VIDE ITS ORDER,DATED 25/01/ 2007,PASSED U/S 195(2) OF THE ACT, THE AO HELD THAT THE PAYMENT MADE BY ASSESSEE FOR PURCHAS E OF SOFTWARE WOULD QUALIFY AS ROYALTY AS PER DTAA AND AS PER PROVISIONS OF SECTION 9(1)(VI) OF T HE ACT.HE DIRECTED THE ASSESSEE TO DEDUCT TAX @ 10% ON GROSS AMOUNT PAYABLE TO ATRICA IRELAND LTD . 2. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE DETAILED SUBMISSIONS.AFTER CONSIDERING VARIOUS CLAUSES OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE NON-RESIDENT ENTITY,HE HELD THAT PAYMENT MADE BY THE ASSESSEE FOR PURCHASE OF SOFTWARE WAS N OT ROYALTY, THAT THE PAYMENT TO M/S. ATRICA IRELAND LTD.WAS TO BE ASSESSED AS BUSINESS INCOME O F NON-RESIDENT ENTITY, THAT M/S. ATRICA IRELAND LTD.DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) I N INDIA, THAT AS PER ARTICLE-7 OF DTAA THE ASSESSEE WAS NOT LIABLE TO PAY TAX IN INDIA. 5090/MUM/08- RELIANCE INFOCOM LTD. 2 3. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR) MADE THE SUBMISSIONS THAT ARE PART OF THE OTHER GROUP APPEALS (I.T.A.S/837/MUM/2007 & ORS. DA TED 2/2/2018-56 APPEALS)).THE AUTHORISED REPRESENTATIVE(AR) REFERRED TO THE ORDER OF THE TRI BUNAL DATED 08/01/2018 IN THE CASE OF INTEC BILLING IRELAND(ITA NO.1535/MUM/2014 AY 2010-11) AN D ADVANCED THE SAME ARGUMENT THAT ARE PART OF THE ARGUMENTS OF 56 OTHER APPEALS (SUPRA). WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL DATED 8/1/2018 ,WHICH READS A S UNDER : 3.BRIEFLY STATED THE FACTS ARE THAT, INTEC IRELAND (THE ASSESSEE) IS A COMPANY INCORPORATED IN IRELAND AND IS A TAX RESIDENT OF IRELAND. DURING TH E AY 2010-11 INTEC IRELAND HAD INTER-ALIA SUPPLIED BILLING SOFTWARE TO RELIANCE INDUSTRIES LI MITED (RELIANCE') FOR THE PURPOSE OF BILLING THEIR CUSTOMERS. A COPY OF SOFTWARE LICENSE AGREEME NT DATED 26 FEBRUARY 2002 IS PLACED AT PAGE NOS. 133 TO 151 OF THE PAPER BOOK. THE SOFTWAR E LICENSE AGREEMENT HAS BEEN ORIGINALLY ENTERED INTO BETWEEN RELIANCE AND INTEC BILLING, AM ERICA A GROUP COMPANY OF THE ASSESSEE, EARLIER KNOWN AS ADC SOFTWARE SYSTEM. AMERICA. THE SAID AGREEMENT HAS BEEN SUBSEQUENTLY ASSIGNED IN ENTIRETY TO INTEC IRELAND THE ASSESSEE VIDE ASSIGNMENT LETTER DATED 08 APRIL 2005. A COPY OF THE ASSIGNMENT LETTER IS PLACED AT PAGES 15 2 AND 153 OF THE PAPER BOOK. THE ASSESSEE HAS LICENSED THE SAME SOFTWARE TO RELIANCE UNDER TH E SAME AGREEMENT WHICH WAS SUBSEQUENTLY ASSIGNED TO THE ASSESSEE. 4. ACCORDING TO THE ASSESSEE THE SOFTWARE LICENSED TO RELIANCE UNDER THE SOFTWARE LICENCE AGREEMENT IS AN 'OFF THE SHELF'/SHRINK WRAPPED' SOF TWARE WHICH ASSISTS TELECOM COMPANIES IN BILLING IN AN EFFICIENT, PROFITABLE BILLING OPERATI ON WITH STRONG FOCUS ON CUSTOMERS AND REVENUE MANAGEMENT. THE SOFTWARE LICENSED BY ASSESSEE IS ST ANDARD PRODUCTS ALREADY DEVELOPED AND MADE AVAILABLE TO OTHER CUSTOMERS. 5. HOWEVER, THE LEARNED ASSESSING OFFICER (AO') HEL D THAT THE AMOUNTS RECEIVABLE BY INTEC IRELAND FOR SUPPLY OF 'OFF THE SHELF' SOFTWARE TO R ELIANCE ARE FOR GRANT OF 'COPYRIGHT' AND ACCORDINGLY, THE RECEIPTS ARE IN THE NATURE OF 'ROY ALTY' AS PER AMENDED SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF THE INDIA-IRELAND TAX TREATY. XXXX 57. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED UPON BY BOTH PARTIES. THE ASSESSEE IS A COMPANY INCORPORATED IN IRELAND AND IS A TAX RESIDENT OF IRELAND. DURING THE ASSESSMENT YE AR 2010-11 ASSESSEE HAD INTER-ALIA SUPPLIED BILLING SOFTWARE TO RELIANCE INDUSTRIES LIMITED FOR THE PURPOSE OF BILLING THEIR CUSTOMERS. THE SOFTWARE LICENSE AGREEMENT HAS BEEN ORIGINALLY ENTE RED INTO BETWEEN RELIANCE AND INTEC BILLING, AMERICA A GROUP COMPANY OF THE ASSESSEE WHICH WAS E ARLIER KNOWN AS ADC SOFTWARE SYSTEM, AMERICA. THE SAID ASSESSMENT HAS BEEN SUBSEQUENTLY ASSIGNED TO INTEC IRELAND THE ASSESSEE IN ENTIRETY BY ASSIGNMENT LETTER DATED 08.04.2005. 58. THE KEY FEATURES OF THE SAID SOFTWARE PROVIDED BY THE ASSESSEE ARE THAT THE SOFTWARE PROVIDED BY INTEC IRELAND IS A COMPREHENSIVE BUSINESS SOLUTI ON ADDRESSING TRANSACTION MANAGEMENT, BILLING AND CUSTOMER CARE ISSUES RELATED TO TELECOM INDUSTRY PLAYERS. IT PROVIDES SOLUTION FOR EFFICIENTLY MANAGING HIGH VOLUMES OF TRANSACTIONS A ND KEEPING AUDIT TRAILS FOR ALL THE TRANSACTIONS, THUS PREVENTING DATA LOSS AND FRAUDS. IT IS A HIGHEND INTEGRATED SOFTWARE COMPRISING OF NUMBER OF FUNCTIONAL MODULES/ PACKAGE S TARGETED AT SPECIFIC BUSINESS AREAS. THESE MODULES CAN BE USED INDEPENDENTLY OR IN CONJU NCTION WITH EACH OTHER TO ADDRESS SPECIFIC REQUIREMENTS OF THE USER. THESE MODULES SUPPORT INV OICE GENERATION, PRODUCT PRICING, PRODUCT RATING ACCOUNTS RECEIVABLES AND BILLING OPERATIONS. FURTHER, THEY ALSO SUPPORT LOCALIZATION OF 5090/MUM/08- RELIANCE INFOCOM LTD. 3 LANGUAGE, CURRENCY, CALENDAR AND REGULATORY AND TAX ATION FRAMEWORK OF THE USER. IN SIMPLE TERMS, THE SAID SOFTWARE COULD BE EQUATED TO 'MICRO SOFT EXCEL' - WHEREIN THE USER FEEDS THE DATA/ INFORMATION RELATED TO A PARTICULAR CUSTOMER OR PRO DUCT IN A BLANK WORKSHEET. THE DATA IS PROCESSED BY THE MODULES IN ORDER TO GENERATE REQUI SITE OUTPUT - AN INVOICE, REPORT, ETC. THE SOFTWARES DELIVERED TO THE USERS ON PHYSICAL ELECT RONIC MEDIA, EX: COMPACT DISK, FLOPPY, PARAGRAPH 6 'DELIVER' CLAUSE OF THE SOFTWARE LICENC E AGREEMENT. 59. ON PERUSAL OF THE CLAUSES OF THE ABOVE AGREEMEN T, IT IS CLEAR THAT INTEC IRELAND EXCLUSIVELY OWNS ALL THE INTELLECTUAL PROPERTY RIGHTS (IPR) IN THE SOFTWARE. INTEC IRELAND HAS MERELY GRANTED A COPYRIGHTED ARTICLE TO RELIANCE AND NOT THE 'COPY RIGHT IN THE ARTICLE. HENCE, RELIANCE DOES NOT USE OR HAVE ANY RIGHT TO USE THE COPYRIGHT IN THE S OFTWARE PRODUCTS AND LNTEC IRELAND MERELY GRANTS A RIGHT TO USE SOFTWARE FOR RELIANCE'S OWN U SE IN INDIA. 60. THE VERY SAME AGREEMENT AND THE SOFTWARE SUPPLI ED BY THE ASSESSEE TO RELIANCE HAS BEEN SUBJECT MATTER IN DISPUTE IN THE ASSESSMENT YEAR 20 02-03 AND COORDINATE BENCH OF THE TRIBUNAL IN ITA.NO. 3196/MUM/2007 DATED 05.02.2010 HELD THAT SALE OF SOFTWARE BY THE ASSESSEE TO THE END CUSTOMER DOES NOT INVOLVE ANY TRANSFER OF COPYR IGHT EITHER IN PART OR IN WHOLE AND THEREFORE CONSIDERATION PAID BY THE DISTRIBUTER CANNOT BE SAI D TO BE A PAYMENT FOR RIGHT OF USE COPYRIGHT OR TRANSFER OF USE OF COPYRIGHT. IN HOLDING SO THE COORDINATE BENCH OBSERVED AS UNDER: - XXXX 61. FURTHER, IT IS THE FINDING OF THE DRP THAT IN THE PRESENT CASE THE ISSUE INVOLVED IS THAT SHRINK WRAPPED/OFF THE SHELF SOFTWARE RECENTLY THE MUMBAI TRIBUNAL IN THE CASE OF CAPGEMINI BUSINESS SERVICES (INDIA) LTD (SUPRA) AFTER CONSIDERING ALL THE DECISION AVAILABLE ON THE ISSUE INCLUDING THE ONE RELIED ON BY THE ASSESSING OFFICER AND THE LD.DR IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. & OTHERS (SUPRA), VERIZON COMMUNICATIO N SINGAPORE (SUPRA), RELIANCE LNFOCOM LTD. (SUPRA) AND VIACOMM 18 MEDIA 39 ITA NO.1535/MU M/2014 (A.Y: 2010-11) INTEC BILLING IRELAND PVT. LTD. (SUPRA) HELD THAT WHERE THE PAYME NT IS MADE FOR THE COPYRIGHTED ARTICLE THE SAME CANNOT BE CONSIDERED AS PAYMENT FOR THE TRANSF ER OF THE COPYRIGHT AND CANNOT BE TAXED AS ROYALTY BY OBSERVING AS UNDER:- XXX XX 67. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE DEFINITION OF ROYALTY UNDER THE INDO-IRELAND TAX TREATY IS PARI-MATERIA AS THAT UNDER INDO-US TAX TREATY AND THE COORDINATE BENCH OF THE TRIBUNAL HAD ALREADY DECIDE D THE ISSUE OF TAXABILITY OF SUPPLY OF SOFTWARE UNDER THE SAME AGREEMENT IN FAVOUR OF THE INTEC- IRELAND WITH REFERENCE TO THE INDOUS TAX TREATY FOR THE ASSESSMENT YEAR 2002-03, WHEREIN IT HAS BEEN HELD 44 ITA NO.1535/MUM/2014 (A.Y: 2010-11) INTEC BILLING IRELA ND THAT RECEIPTS FROM SUPPLY OF SOFTWARE ARE NOT TAXABLE IN THE HANDS OF INTECIRELAND AS ROY ALTY. THEREFORE, SINCE BOTH THE TREATIES ARE PARI-MATERIA WITH EACH OTHER, WE HOLD THAT THE RECE IPTS FROM SUPPLY OF SOFTWARE ARE NOT TAXABLE IN THE HANDS OF INTECIRELAND AS ROYALTY UNDER NEW IRELAND TAX TREATY. INTEC-IRELAND DOES NOT HAVE PE IN INDIA AND ACCORDINGLY AMOUNTS RECEIVED B Y INTEC-IRELAND TOWARDS SUPPLY OF SOFTWARE ARE NOT LIABLE TO TAX IN INDIA. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HOLD THAT PAYMENT RECEIVED BY THE ASSESSEE WAS NOT IN THE NATURE OF ROYALTY AND CANNOT BE THEREFORE BROUGHT T O TAX. ON 2/2/2018,WHILE DECIDING 56 APPEALS FILED BY THE AO ,WE HAVE DELIBERATED UPON IDENTICAL ISSUE. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT PA YMENTS MADE BY ASSESSEE FOR PURCHASE OF TELECOMMUNICATION SOFTWARE FROM M/S. ATRICA IRELAND LTD., AN IRISH SOFTWARE SUPPLIER, WAS NOT 5090/MUM/08- RELIANCE INFOCOM LTD. 4 PAYMENT OF ROYALTY AND THAT ASSESSEE WAS NOT OBLIGE D TO DEDUCT TAX AT SOURCE. CONFIRMING THE ORDER OF THE FAA,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO,STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2018. 07 , 2018 SD/- SD/- ( /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :07.02.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.