Huawei Technology Co. Ltd., China V. ADIT, New Delhi

ITA 5255/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74382 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; Application of stay; Permanent establishment; Wholly owned subsidiary
• Section: 5(2); 133A; 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI ABY T. VARKEY ABY T. VARKEY ABY T. VARKEY ABY T. VARKEY, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NOS SS S. .. .5253/DEL/2011, 5254/DEL/2011, 5255/DEL/2011 & 5256 /DEL/2011 5253/DEL/2011, 5254/DEL/2011, 5255/DEL/2011 & 5256/ DEL/2011 5253/DEL/2011, 5254/DEL/2011, 5255/DEL/2011 & 5256/ DEL/2011 5253/DEL/2011, 5254/DEL/2011, 5255/DEL/2011 & 5256/ DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2005 2005 2005 2005- -- -06, 2006 06, 2006 06, 2006 06, 2006- -- -07, 200 07, 200 07, 200 07, 2007 77 7- -- -08 & 2008 08 & 2008 08 & 2008 08 & 2008- -- -09 0909 09 M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES CO., LTD., CO., LTD., CO., LTD., CO., LTD., ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, SHENZHEN, 518129, SHENZHEN, 518129, SHENZHEN, 518129, P.R. CHINA. P.R. CHINA. P.R. CHINA. P.R. CHINA. PAN : AACCH2982B. PAN : AACCH2982B. PAN : AACCH2982B. PAN : AACCH2982B. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -3(2), IN 3(2), IN 3(2), IN 3(2), INTERNATIONAL TAXATION, TERNATIONAL TAXATION, TERNATIONAL TAXATION, TERNATIONAL TAXATION, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) STAY APPLICATION NOS STAY APPLICATION NOS STAY APPLICATION NOS STAY APPLICATION NOS.252/DEL/2013, 253/DEL/2013, 25 4/DEL/2013 & .252/DEL/2013, 253/DEL/2013, 254/DEL/2013 & .252/DEL/2013, 253/DEL/2013, 254/DEL/2013 & .252/DEL/2013, 253/DEL/2013, 254/DEL/2013 & 255/DEL/2013 255/DEL/2013 255/DEL/2013 255/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2005 2005 2005 2005- -- -06, 2006 06, 2006 06, 2006 06, 2006- -- -07, 2007 07, 2007 07, 2007 07, 2007- -- -08 & 2008 08 & 2008 08 & 2008 08 & 2008- -- -09 0909 09 M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES M/S HUAWEI TECHNOLOGIES CO., LTD., CO., LTD., CO., LTD., CO., LTD., ADMINIST ADMINIST ADMINIST ADMINISTRATION BUILDING, RATION BUILDING, RATION BUILDING, RATION BUILDING, HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI HEADQUARTERS OF HUAWEI TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., TECHNOLOGIES CO., LTD., BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, SHENZHEN, 518129, SHENZHEN, 518129, SHENZHEN, 518129, P.R. CHINA. P.R. CHINA. P.R. CHINA. P.R. CHINA. PAN : AACCH2982B. PAN : AACCH2982B. PAN : AACCH2982B. PAN : AACCH2982B. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.S. SYALI, SENIOR ADVOCATE AND SHRI TARANDEEP SINGH, FCA. REVENUE BY : SHRI SANJEEV SHARMA, CIT-DR AND SHRI VIVEK KUMAR, SENIOR DR. ITA-5253/DEL/2011 & OTHERS 2 ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : ITA NO.5253/DEL/2011 ITA NO.5253/DEL/2011 ITA NO.5253/DEL/2011 ITA NO.5253/DEL/2011 (ASSESSEES APPEAL FOR AY 2005 (ASSESSEES APPEAL FOR AY 2005 (ASSESSEES APPEAL FOR AY 2005 (ASSESSEES APPEAL FOR AY 2005- -- -06) 06) 06) 06) : : : :- -- - THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE DIREC TIONS OF LEARNED DISPUTE RESOLUTION PANEL-I, NEW DELHI DATED 2 ND AUGUST, 2011 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NOS.1 TO 3 OF THE ASSESSEES APPEAL READ AS UNDE R:- 1. THAT THE LEARNED ASSESSING OFFICER (AO') ERRED IN PASSING THE IMPUGNED ASSESSMENT ORDER DATED SEPTEMBER 23, 2011 (THE DRAFT ASSESSMENT ORDER) AND THE HONBLE DISPUTE RESOLUTION PANEL (HONBLE DRP) ERRED IN PASSI NG DIRECTIONS UNDER SECTION 144(C) OF THE INCOME-TAX AC T, 1961 (THE ACT) CONFIRMING THE DRAFT ASSESSMENT ORDER. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN ASSESSING THE INCOME OF THE APPELLA NT AT RS.43,75,26,310 AS AGAINST THE RETURNED INCOME OF RS.82,69,535. 2. THE LEARNED AO ERRED IN PROPOSING AND THE HONBLE DRP FURTHER ERRED IN CONFIRMING THE ADDITION OF RS.42,92,56,775 TO THE APPELLANTS RETURNED INCOME OF RS.82,69,535. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE HONBLE DRP ERRED IN MA KING SEVERAL ALLEGATIONS, OBSERVATIONS AND ASSERTIONS BASED ON MERE CONJECTURES AND SURMISES, WITHOUT ANY RELEVANT MATERIAL ON RECORD. INTER-ALIA THE INCORRECT ASSUMPTIONS/INFERENCES MADE BY THE HONBLE DRP ARE AS UNDER: (A) THE LEARNED AO WAS JUSTIFIED IN ASSUMING JURISDICTIO N UNDER SECTION 147 OF THE ACT BY WAY OF ISSUE OF NOTIC E UNDER SECTION 148 OF THE ACT. (B) THE APPELLANT HAS A PERMANENT ESTABLISHMENT (PE ) AND BUSINESS CONNECTION (BC) IN INDIA IN THE FORM OF HUAWEI TELECOMMUNICATIONS (INDIA) CO. PVT.LTD. (HUA WEI INDIA), WHICH IS ASSESSED IN NEW DELHI. ITA-5253/DEL/2011 & OTHERS 3 (C) THE LEARNED AO IS JUSTIFIED IN ATTRIBUTING INCOME TO THE ALLEGED PE OF THE APPELLANT. (D) THE LEARNED AO IS JUSTIFIED IN ALLOCATING 30% OF THE TOTAL SUPPLIES TOWARDS SOFTWARE IN THE EQUIPMENT AND TAXING THE SAME AS ROYALTY INCOME. 3. AT THE TIME OF HEARING BEFORE US, THE LEARNED COU NSEL FOR THE ASSESSEE STATED THAT GROUND NOS.1 & 2 ARE OF GENERAL NATU RE AND NEED NO SEPARATE ADJUDICATION. BY WAY OF GROUND NO.3, TH E ASSESSEE HAS CHALLENGED CERTAIN OBSERVATIONS/ALLEGATIONS MADE BY LE ARNED DRP. HE, HOWEVER, STATED THAT THOSE OBSERVATIONS/ALLEGATIONS WOUL D BE DEALT WITH BY THE ASSESSEE WHILE ARGUING SPECIFIC GROUNDS OF AP PEAL, AND NO SPECIFIC RELIEF IS BEING CLAIMED BY WAY OF GROUND NO. 3. HE, THEREFORE, FAIRLY SUBMITTED THAT GROUND NO.3 DOES NOT REQUIRE SEP ARATE ADJUDICATION. IN VIEW OF THE ABOVE, GROUND NOS.1 TO 3 OF THE ASSESSEES APPEAL ARE NOT BEING ADJUDICATED UPON, SEPARATELY. 4. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS UNDER:- 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THE ACTION OF LEARN ED AO OF ASSUMING JURISDICTION UNDER SECTION 147 OF THE ACT BY WAY OF ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. 4.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AO AND THE HONBLE DRP ERRED IN HOLDING THA T PROCEEDINGS INITIATED UNDER SECTION 148 OF THE ACT A GAINST THE APPELLANT ARE VALID IN LAW WHEN THERE WAS NO REL EVANT MATERIAL ON RECORD WITH THE LEARNED AO SO AS TO GIVE RISE TO ANY VALID REASONS TO BELIEVE THAT INCOME OF THE APP ELLANT HAD ESCAPED ASSESSMENT. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND P ERUSED THE MATERIAL PLACED BEFORE US. IN THIS CASE, THE ASSESSEE, WH ICH IS A ITA-5253/DEL/2011 & OTHERS 4 COMPANY INCORPORATED IN CHINA, IS ENGAGED IN THE BU SINESS OF SUPPLYING NON-TERMINAL PRODUCTS, I.E., TELECOMMUNICAT IONS NETWORK EQUIPMENT, I.E., CORE AND ACCESS NETWORK EQUIPMENT, M OBILE NETWORK EQUIPMENT AND DATA COMMUNICATIONS EQUIPMENT. THE ASSE SSEE HAD NOT FILED ANY RETURN OF INCOME. DURING THE COURSE O F SURVEY UNDERTAKEN AT THE OFFICE PREMISES OF HUAWEI INDIA, SEVERAL DOCUM ENTS WERE FOUND AND STATEMENTS OF VARIOUS SENIOR EXECUTIVES WERE RECORD ED. ON THE BASIS OF THE SAID DOCUMENTS AND STATEMENTS, THE ASSESSING O FFICER ARRIVED AT THE CONCLUSION THAT THE ASSESSEE WAS HAVING PE RMANENT ESTABLISHMENT (PE) IN INDIA AND THE INCOME THAT HAS AC CRUED TO THE ASSESSEE FROM THE SUPPLY OF TELECOMMUNICATIONS NETWORK EQ UIPMENT DURING THE PREVIOUS YEAR IS TAXABLE IN INDIA. IN VI EW OF THE ABOVE, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961. IN RESPONSE TO THE NOTICE UNDER SECTION 1 48, THE ASSESSEE FILED THE RETURN OF INCOME ON 30 TH JULY, 2009 DISCLOSING TOTAL INCOME OF ` 82,69,535/-. THAT THE DISCLOSURE OF INCOME BY THE ASSE SSEE ITSELF IN RESPONSE TO NOTICE UNDER SECTION 148 CLEARLY ESTABLISHE S THAT THE ASSESSEE HAD A TAXABLE INCOME WHICH IT DID NOT DISCLOSE V OLUNTARILY. IN VIEW OF THE ABOVE, THE BELIEF OF THE ASSESSING OFFICER , THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT DUE TO NON-FILING OF THE RETURN BY THE ASSESSEE, IS WELL-FOUNDED. WE FIND THAT LEARNED DRP REJECTED THE ASSESSEES GROUND AGAINST THE INITIATION OF PROCEEDI NGS UNDER SECTION 148 WITH THE FOLLOWING FINDING:- 5.1 THE SECOND OBJECTION RAISED BY THE ASSESSEE IS THAT NOTICE U/S 148 ISSUED TO THE ASSESSEE IS BAD IN LAW. IT IS CONTENDED THAT TO ASSUME JURISDICTION U/S 148, IT IS NECESSARY TO COME ACROSS SOME FRESH FACTS OR EVIDENCE FORMING BASIS OF REASON FOR BELIEF THAT INCOME CHARGE ABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE PRESENT CASE, THE ASSESSEE CONTENDS THAT THERE IS NO SUCH MATERIAL JUSTIFYING THE ISSUE OF NOTICE U/S 148. ITA-5253/DEL/2011 & OTHERS 5 5.2 THE ASSESSEES CONTENTIONS HAVE BEEN CONSIDERED AND IT IS OBSERVED THAT THE BASIS FOR ISSUE OF NOTICE U/S 148 IS VERY CLEAR. IT WAS UPON SURVEY U/S 133A CONDUCTED ON 17.02.2009 AT THE OFFICE PREMISES OF HUAWEI INDIA AT GURGAON, WHICH LED TO THE INFORMATION IN THE FORM O F DOCUMENTS AND STATEMENTS OBTAINED BY THE DEPARTMENT REVEALING THAT THE ASSESSEE WAS HAVING A PE IN INDIA. I T WAS ON THIS BASIS THAT NOTICE U/S 148 WAS ISSUED. THE CONTENTION OF THE ASSESSEE THAT THE MATERIAL SO OBTAINED DID NOT JUSTIFY THE BELIEF OF INCOME HAVING ESCAPED ASSESSMENT, IS INCORRECT, AS PURSUANT TO THE SURVEY, UPON ISSUE OF NOTICE U/S 148, THE ASSESSEE ITSELF DECLARED TAXA BLE INCOME OF RS.2,869,535/-, WHEREAS IT HAD NOT FILED AN Y VOLUNTARY RETURN OF INCOME AT ALL. AS SUCH, THE AO WAS JUSTIFIED IN ASSUMING JURISDICTION U/S 147 BY WAY OF ISSUE OF NOTICE U/S 148. 6. AFTER CONSIDERING THE FACTS OF THE CASE AND THE ARG UMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED DRP. THE ASSESSEE HAD A TAXABLE INCOME IN INDIA WHICH IT DID NOT DISCLOSE VOLUNTARILY BUT DISCLOSED ONLY AFTER THE ISSUANCE OF NO TICE UNDER SECTION 148. THUS, IT IS A CLEAR CASE WHERE THERE WAS ESCAPEMEN T OF INCOME DUE TO NON-FILING OF RETURN BY THE ASSESSEE. WE, THER EFORE, FIND NO MERIT IN GROUND NO.4 OF THE ASSESSEES APPEAL. THE SAME IS REJECTED. 7. GROUND NOS.5 & 6 OF THE ASSESSEES APPEAL READ AS UNDER :- 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THE ACTION OF LEARN ED AO OF ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER THE PROVISIONS OF THE ACT AND DOUBLE TAX AVOIDANCE AGREEM ENT ENTERED BETWEEN INDIA AND CHINA (TAX TREATY) WITH OUT APPRECIATING THAT INCOME OF THE APPELLANT (OTHER TH AN THE INCOME OFFERED TO TAX UNDER THE RETURN OF INCOME FO R THE YEAR UNDER APPEAL): (A) HAD NOT ACCRUED/ARISEN IN INDIA UNDER SECTION 5( 2) OF THE ACT; ITA-5253/DEL/2011 & OTHERS 6 (B) COULD NOT BE DEEMED TO HAVE ACCRUED/ARISEN IN IN DIA UNDER SECTION 9 OF THE ACT; AND (C) WAS NOT TAXABLE IN INDIA UNDER THE TAX TREATY. 5.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AO AND THE HONBLE DRP ERRED IN HOLDING THA T EXISTENCE OF APPELLANTS WHOLLY OWNED SUBSIDIARY, HUAWE I INDIA, CREATES A BC OF THE APPELLANT UNDER SECTION 9 (1)(I) OF THE ACT. 5.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THAT THE INCOME OF THE APPELLANT IS ASSESSABLE TO TAX UNDER THE TAX TREATY ON T HE GROUND THAT THE APPELLANT CONSTITUTES A PE IN INDIA, VIZ : A) FIXED PLACE PE UNDER ARTICLE 5(2)(C) READ WITH A RTICLE 5(1) OF THE TAX TREATY; B) INSTALLATION PE UNDER ARTICLE 5(2)(J) READ WITH A RTICLE 5(1) OF THE TAX TREATY; C) SERVICE PE UNDER ARTICLE 5(2)(K) READ WITH ARTIC LE 5(1) OF THE TAX TREATY; D) DEPENDENT AGENT PE UNDER ARTICLE 5(4) OF THE TAX TREATY. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THE ACTION OF LEARN ED AO OF ATTRIBUTING INCOME TO THE ALLEGED PE OF THE APPELLA NT. 6.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRO ERRED IN NOT APPRECIATING THAT SINCE NO PART OF ACTIVITY RELATING TO SALE OF NETWORK EQUIPMENT WAS CARRIED OUT IN INDIA, THE QUEST ION OF ATTRIBUTING ANY INCOME TO INDIA DID NOT ARISE. 6.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRP ERRED IN NOT APPRECIATING THAT NO PORTION OF PROFITS, IF ANY, ACC RUING TO APPELLANT FROM OFFSHORE SALE OF TERMINAL EQUIPMENT TO INDIAN CUSTOMERS CAN BE ATTRIBUTED TO THE ALLEGED PE IN ITA-5253/DEL/2011 & OTHERS 7 INDIA GIVEN THE NATURE OF EQUIPMENT, CUSTOMER PROFIL E AND MODALITIES OF UNDERTAKING SALES. 6.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRP ERRED IN NOT APPRECIATING THAT AS THE ALLEGED PE OF THE APPELLANT HAS BEEN REMUNERATED AT ARMS LENGTH PRICE, NO FURTHER I NCOME COULD BE ATTRIBUTED AND ASSESSED TO TAX IN INDIA, IN TH E HANDS OF THE APPELLANT. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. AS WE HAVE ALREADY MENTIO NED THAT THE ASSESSEE IS A COMPANY INCORPORATED IN CHINA AND IS ENGAGE D IN THE BUSINESS OF SUPPLYING TELECOMMUNICATION NETWORK EQUIPM ENT TO VARIOUS CUSTOMERS. IN FEBRUARY 2009, SURVEY OPERATION UNDER SECTION 133A OF THE ACT WAS UNDERTAKEN ON THE OFFICE PREMISES OF HUAWEI INDIA. DURING THE COURSE OF SURVEY, SEVERAL DOCUMENTS WERE FOUND AND IMPOUNDED AND STATEMENTS OF VARIOUS SENIOR EXECUTIVES W ERE RECORDED. ON THE BASIS OF DOCUMENTS FOUND AND THE ST ATEMENT OF VARIOUS PERSONS, THE ASSESSING OFFICER RECORDED THE FINDIN G THAT THE ASSESSEE COMPANY IS HAVING A PE IN INDIA WITH THE FOLLOW ING OBSERVATIONS:- 8.1 ON THE BASIS OF VARIOUS FACTS/INFORMATION COLLECTE D DURING THE SURVEY AND AFTERWARDS, IT IS CLEAR THAT THE ASSESSEE IS CARRYING OUT THE BUSINESS IN INDIA. THE BUSINESS OF THE ASSESSEE IN INDIA IS BEING CONDUCTED WITH ACTIVE INVOLVEMENT OF THE EMPLOYEES OF HUAWEI INDIA. SUCH EMPLOYEES OF HUAWEI INDIA ALONG WITH EMPLOYEES O F THE ASSESSEE HAVE JOINTLY PREPARED BIDDING DOCUMENTS FO R CONTRACTS, NEGOTIATED AND CONCLUDED THE CONTRACT ON BEHALF OF THE ASSESSEE WITH ITS INDIAN CUSTOMERS. THE ASSESSEE HAS GIVEN POWER OF ATTORNEY IN FAVOR OF ITS EMPLOYEES FOR SIGNING THE CONTRACTS, CONDUCTING NEGOTIATION AND EXECUTING ALL NECESSARY MATTERS FOR MTNL PROJECT IN IN DIA. 8.2 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ASSESSEE, BEING TAX RESIDENTS OF CHINA, HAD FIXED PLACE PE IN I NDIA IN FORM OF OFFICE PREMISES OF HUAWEI INDIA. THE BUSINESS ITA-5253/DEL/2011 & OTHERS 8 ACTIVITIES OF THE ASSESSEE BEING CONDUCTED FROM THE FIX ED PLACE OF BUSINESS REFERRED ABOVE FORMS THE CORE OF SELLI NG ACTIVITIES AND CANNOT BE TERMED AS OF THE PREPARATORY OR AUXILIARY CHARACTER. 8.3 THE EMPLOYEES OF HUAWEI INDIA FORMS THE SALES TEAMS OF THE ASSESSEE, SUCH EMPLOYEES HAVE HABITUALLY SECURED ORDERS IN INDIA, WHOLLY OR ALMOST WHOLLY FOR T HE ASSESSEE. THE VARIOUS DOCUMENTS IN THE FORM OF AGREEMENTS/PURCHASE ORDERS/COPIES OF CONTRACTS ALSO PROVES THE ACTIVE INVOLVEMENT OF THE EMPLOYEES OF IND IAN COMPANY IN THE CONCLUSION OF CONTRACTS ON BEHALF OF T HE ASSESSEE. HUAWEI INDIA IS ECONOMICALLY, TECHNICALLY AND FINANCIALLY ALL DEPENDENT UPON HUAWEI CHINA. THERE FORE, HUAWEI INDIA ALSO CONSTITUTES THE AGENT OTHER THAN AN AGENT OF INDEPENDENT STATUS OF HUAWEI CHINA. THIS RESU LTS INTO THE CREATION OF THE DEPENDENT AGENT PE AS PER T HE PROVISIONS OF THE TAX TREATIES AND BUSINESS CONNECTION AS PER THE PROVISIONS OF EXPLANATION 2 TO SECTION 9(1)(I ) OF THE INCOME TAX ACT, 1961. 9. THE ASSESSEE RAISED THE OBJECTION BEFORE THE DRP. HO WEVER, THE DRP REJECTED THE ASSESSEES OBJECTION AND HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS HAV ING A PE AS WELL AS BUSINESS CONNECTION IN INDIA. THE RELEVANT FINDING OF THE DRP READS AS UNDER:- 6.1 THE THIRD OBJECTION RAISED BY THE ASSESSEE IS THAT I T IS NOT TAXABLE IN INDIA UNDER THE ACT AND UNDER THE DT AA. IT IS CONTENDED THAT APART FROM WHAT IS DECLARED BY IT I N THE RETURN FILED IN RESPONSE TO NOTICE U/S 148, THE ASSESSEES INCOME HAS NOT ACCRUED/ARISEN IN INDIA U/S 5(2) OF THE ACT AND THE AO HAS ERRED IN HOLDING THAT HUAWEI INDIA IS THE ASSESSEES PE AS WELL AS THE BUSINESS CONNECTION IN INDIA. IT IS FURTHER CONTENDED THAT THE AO ALSO ERRED IN ASSE SSING THE INCOME OF THE ASSESSEE AS CONSTITUTING PE UNDER THE DTAA, I.E. FIXED PLACE PE, INSTALLATION PE, SERVICE P E AND DEPENDENT AGENT PE. 6.2 THE CONTENTIONS RAISED BY THE ASSESSEE HAVE BEEN CONSIDERED. PERUSAL OF THE DRAFT ASSESSMENT ORDER REVEA LS THAT THE SAME CONTENTIONS WERE RAISED BY THE ASSESSEE ITA-5253/DEL/2011 & OTHERS 9 DURING THE ASSESSMENT PROCEEDINGS ALSO AND THE AO HAS ELABORATELY DEALT WITH EACH OF THESE CONTENTIONS IN T HE DRAFT ORDER. AS PER SECTION 5(2) READ WITH SECTION 9 (1)(I) OF THE ACT, THE ASSESSEES INCOME CAN BE TAXED UNDER THE A CT ONLY IF THE ASSESSEE HAS A BUSINESS CONNECTION IN INDIA AN D THE INCOME IS ACCRUING OR ARISING DIRECTLY OR INDIREC TLY THROUGH SUCH BUSINESS CONNECTION. EXPLANATIONS TO CLAU SE (I) OF SECTION 9(1) CLARIFIES THAT BUSINESS CONNECTION W ILL INCLUDE A PERSON ACTING ON BEHALF OF NON-RESIDENT AND CARRYING ON CERTAIN ACTIVITIES. THUS, THE MEANING OF BUSINESS CONNECTION IS VERY WIDE AND THE EXISTENCE OF BUSINESS CONNECTION DEPENDS UPON THE FACTS OF A PARTICUL AR CASE. IN THE PRESENT CASE, THE TELECOM EQUIPMENT SUPP LIED BY THE ASSESSEE ARE INVARIABLY INSTALLED AND COMMISSIONED BY ITS WHOLLY OWNED SUBSIDIARY HUAWEI INDIA AND HENCE, IT IS CLEAR THAT THE ASSESSEE HAS A BUSINESS CONNECTION IN INDIA. FURTHER, THE FINDINGS AS A RESULT OF SURVEY U/S 133A REVEALED THAT THE ASSESSEES BUSINESS IS CARRIED OUT IN IND IA WITH THE HELP OF ITS EMPLOYEES, WHO REGULARLY WORK FR OM THE PREMISES OF HUAWEI INDIA, THUS CONSTITUTING FIXED PLAC E PE. THE ASSESSEES EMPLOYEES ALSO VISIT INDIA TO PERFORM ACTIVITIES RELATING TO INSTALLATION PROJECTS LASTING FO R MORE THAN 180 DAYS, WHICH CONSTITUTES INSTALLATION PE. THE STATEMENTS RECORDED DURING SURVEY ALSO SHOW THAT THE EMPLOYEES RENDER TECHNICAL SERVICES CONTINUING FOR MOR E THAN 183 DAYS, CONSTITUTING SERVICE PE. FURTHER, THE PROCESS OF JOINT BIDDING BY THE ASSESSEE AND HUAWEI INDI A CONSTITUTES DEPENDENT AGENT PE. THE AO HAS ALSO REPRODUCED THE RELEVANT EXTRACTS FROM THE STATEMENTS O F EMPLOYEES RECORDED DURING THE SURVEY, WHICH AMPLY PRO VE THE EXISTENCE OF ASSESSEES PE IN INDIA. AS SUCH, THE AO IS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS PE AS WELL AS BUSINESS CONNECTION IN INDIA AND ITS INCOME IS TAXABLE B OTH UNDER THE ACT AS WELL AS THE DTAA. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE WAS UNABLE TO CONTROVERT THE FINDING RECORDED B Y THE ASSESSING OFFICER AS WELL AS LEARNED DRP. THE ASSESSING OFFI CER HAS CLEARLY RECORDED THE FINDING THAT THE BUSINESS OF THE ASSESSEE IN INDIA IS BEING CONDUCTED WITH ACTIVE INVOLVEMENT OF THE EM PLOYEES OF HUAWEI INDIA. SUCH EMPLOYEES OF HUAWEI INDIA ALONGW ITH THE EMPLOYEES OF THE ASSESSEE HAVE JOINTLY PREPARED BIDDING DOCUMENTS ITA-5253/DEL/2011 & OTHERS 10 FOR CONTRACTS, NEGOTIATED AND CONCLUDED THE CONTRACT ON BEHALF OF THE ASSESSEE WITH ITS INDIAN CUSTOMERS. HE HAS ALSO RECORDED TH E FINDING THAT THE EMPLOYEES OF HUAWEI INDIA FORM THE SALES TEAM OF THE ASSESSEE. SUCH EMPLOYEES HAVE HABITUALLY SECURED ORDERS I N INDIA WHOLLY OR ALMOST WHOLLY FOR THE ASSESSEE. VARIOUS DOCUM ENTS FOUND DURING THE COURSE OF SURVEY IN THE FORM OF AGREEMENTS, PURCHASE ORDERS, COPIES OF CONTRACT PROVE THE ACTIVE INVOLVEME NT OF EMPLOYEES OF INDIAN COMPANY IN THE CONCLUSION OF CONTRACTS ON B EHALF OF THE ASSESSEE. ALL THESE FACTS RECORDED BY THE ASSESSING OFFICER AND UPHELD BY THE DRP HAVE NOT BEEN CONTROVERTED BEFORE US. IN VIEW OF THE ABOVE, WE DO NOT FIND JUSTIFICATION TO INTERFERE WIT H THE ORDER OF LEARNED DRP IN THIS REGARD. ACCORDINGLY, GROUND NOS.5 & 6 OF THE ASSESSEES APPEAL ARE REJECTED. 11. GROUND NO.7 OF THE ASSESSEES APPEAL READS AS UNDER:- 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THE ACTION OF LEARN ED AO OF ALLOCATING 30% OF THE TOTAL SUPPLIES TOWARDS SOFTWARE IN THE EQUIPMENT AND TAXING THE SAME AS ROYALTY INCOME. 7.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING ALLOCATION OF PORTI ON OF TELECOM NETWORK EQUIPMENT SUPPLY REVENUES TOWARDS SOFTWARE. EVEN OTHERWISE, THE SUBJECT ALLOCATION PROP OSED BY THE LEARNED AO AND CONFIRMED BY THE HONBLE DRP IS INCORRECT AND CONTRARY TO MATERIAL FURNISHED ON RECO RD. 7.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONB LE DRP FURTHER ERRED IN CONFIRMING THE TAXING OF INCOM E ESTIMATED TO BE EARNED FROM SUPPLY OF SOFTWARE AS ROYALTY/FEE FOR TECHNICAL SERVICES, UNDER THE PROVISI ONS OF THE ACT AND TAX TREATY. ITA-5253/DEL/2011 & OTHERS 11 7.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRP ERRED IN NOT APPRECIATING THAT THE REVENUES FROM SUPPLY OF SOFTWAR E CAN AT BEST BE SUBJECTED TO TAX AS BUSINESS PROFITS UNDER ARTICLE 7 READ WITH ARTICLE 5 OF THE TAX TREATY I.E . IN THE EVENT THE APPELLANT CONSTITUTES A PE IN INDIA. 7.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRP ERRED IN NOT FOLLOWING THE DECISION OF HONBLE SPECIAL BENCH OF D ELHI INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF MOTOROL A INC & OTHER VS. DDIT (96 TTJ 1) AND VARIOUS OTHER JUDICIAL PRECEDENTS, SUPPORTING THE APPELLANTS ABOVE CONTENTIO NS. 7.5 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AS WELL AS THE HONBLE DRP ERRED IN APPLYING THE RATIO OF MICROSOFT CORPORATIONS DECISION (REPORTED IN 134 TTJ 257). 12. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ASSESSEE DERIVES INCOME FROM SUPPLY OF TELECOMMUNICATION NETWORK EQUIPMENT. THAT THERE WA S ONE CONSOLIDATED PRICE FOR SUPPLY OF THE NETWORK EQUIPMEN T. THAT THE ASSESSING OFFICER ARTIFICIALLY ALLOCATED THE REVENUE FR OM THE SUPPLY OF EQUIPMENT BETWEEN TWO PORTIONS I.E., THE HARDWARE/EQ UIPMENT SUPPLIED AND THE SOFTWARE WHICH IS EMBEDDED WITH THE HARDWARE/EQUIPMENT. THAT THE ASSESSING OFFICER ALLOCA TED THE RECEIPT FROM SUPPLY OF EQUIPMENT BETWEEN HARDWARE AND SOFTWA RE IN THE RATIO OF 70% FOR HARDWARE AND 30% FOR SOFTWARE. IN RESPECT OF SUPPLY OF HARDWARE, THE ASSESSING OFFICER ESTIMATED OPERATING PRO FIT AND THEN ATTRIBUTED 20% TOWARDS THE PE IN INDIA. HOWEVER, IN RESPECT OF THE ALLEGED SOFTWARE PORTION, HE TREATED THE RECEIPT FRO M SOFTWARE AS INCOME FROM ROYALTY AND HELD THAT AS PER INDIA-CHINA TAX TREATY, THE INCOME FROM ROYALTY IS TO BE CHARGED TO TAX AT THE R ATE OF 10%. IT IS CONTENDED BY THE LEARNED COUNSEL THAT THERE WAS NO SEP ARATE SUPPLY OF SOFTWARE. SOFTWARE IS EMBEDDED WITH THE HARDWARE/EQU IPMENT AND IS NECESSARY FOR THE OPERATION OF THE EQUIPMENT. THE AS SESSEE HAS ITA-5253/DEL/2011 & OTHERS 12 CHARGED A CONSOLIDATED PRICE FOR THE SUPPLY OF EQUIPM ENT WHICH INCLUDED HARDWARE AS WELL AS SOFTWARE BOTH. HE, THERE FORE, SUBMITTED THAT THE ENTIRE RECEIPT FROM THE SUPPLY OF EQUIPMENT IS TO BE ASSESSED AS BUSINESS INCOME AS IS DONE BY THE ASSESSING OFFICER IN RESP ECT OF HARDWARE. HE FURTHER STATED THAT THE ISSUE IS NOW SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF DIT VS. ERICSSON A.B., NEW DELHI [2012] 204 TAXMAN 192 (DELHI) AND ALSO DIT VS. NOKIA NETWORKS OY [2013] 212 TAXMAN 68. 13. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND DRP AND STATED THAT FROM THE AGRE EMENT WITH HTL LTD. WHICH IS PLACED AT PAGES 29 & 30 OF THE PAPE R BOOK AND THE AGREEMENT WITH STERLITE OPTICAL TECHNOLOGIES LTD. PL ACED AT PAGES 81 AND 112 OF THE PAPER BOOK, THERE IS MENTION OF SEPARA TE PRICE FOR HARDWARE AND SOFTWARE. THEREFORE, IT IS EVIDENT THAT THE SUPPLY OF HARDWARE AND SOFTWARE IS SEPARATE AND THE CONTENTION O F THE ASSESSEE, THAT ASSESSEE ONLY SUPPLIED THE EQUIPMENT WHEREIN SOFTWAR E IS EMBEDDED WITH HARDWARE, IS FACTUALLY INCORRECT. IN THIS REGARD, HE REFERRED TO THE CONTRACT BETWEEN THE ASSESSEE AND HTL L TD. AND POINTED OUT THAT THE SOFTWARE IS SEPARATELY DEFINED. HE ALSO REFERRED THE AGREEMENT BETWEEN THE ASSESSEE AND STERLITE OPTICAL TECHNOLOGIES LTD. SO AS TO POINT OUT THAT THE BUYER, I.E., STERLIT E OPTICAL TECHNOLOGIES LTD. HAS BEEN GRANTED NON-EXCLUSIVE, NON-TRANSFERABLE AND NON-SUB LICENSABLE LICENSE TO USE THE SOFTWARE. IN VIEW OF THE ABOVE, IT IS CONTENDED THAT THE SUPPLY OF SOFTWARE AND HARDWARE WA S SEPARATE AND THE ASSESSING OFFICER RIGHTLY TAXED INCOME FROM SUPPLY O F SOFTWARE AS ROYALTY. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ANOTHER VS. SAMSUNG ELECTRONICS CO. LTD. [2012] 345 ITR 494 (KARN) AND THE DECISION OF ITA-5253/DEL/2011 & OTHERS 13 ITAT DELHI BENCH IN THE CASE OF GRACEMAC CORPORATION VS. ADIT [2010] 42 SOT 550 (DELHI). 14. IN THE REJOINDER, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON A.B., NEW DELHI (SUPRA) WERE IDENTICAL. IN T HAT CASE ALSO, THE LUMP SUM PRICE OF THE SUPPLY CONTRACT WAS BIFURCATED IN TWO COMPONENTS, VIZ., CONSIDERATION FOR SUPPLY OF EQUIPMEN T AND FOR SUPPLY OF SOFTWARE. IT WAS EXPLAINED BY THE ASSESSEE IN THAT C ASE ALSO THAT SEPARATE SPECIFICATION OF HARDWARE AND SOFTWARE SUPPL IED WAS NECESSARY BECAUSE OF THE DIFFERENTIAL CUSTOMS DUTY PAYAB LE. THE LEARNED COUNSEL REFERRED TO THE AGREEMENT BETWEEN TH E ASSESSEE AND THE BUYER OF THE EQUIPMENT AND POINTED OUT THAT THE RE WAS LUMP SUM CONSIDERATION FOR THE CONTRACT OF SUPPLY OF EQUIPMENT AND BIFURCATION IS ONLY IN THE SCHEDULE, THAT TOO, FOR THE PURPOSE OF PA YMENT OF CUSTOMS DUTY. HE ALSO REFERRED TO PARAGRAPH 25.8 OF THE CON TRACT BETWEEN THE ASSESSEE AND STERLITE OPTICAL TECHNOLOGIES LTD. SO AS TO POINT OUT THAT IN RESPECT OF SOFTWARE, THE BUYER IS GRANTED ONLY NON- EXCLUSIVE, NON- TRANSFERABLE AND NON-SUB LICENSABLE LICENSE TO USE THE SO FTWARE. HE, THEREFORE, SUBMITTED THAT THE DECISION OF HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON A.B., NEW DELHI (SUPRA) A ND ALSO IN THE CASE OF DIT VS. INFRASOFT LTD., VIDE ORDER DATED 22 ND NOVEMBER, 2013 IN ITA NO.1034/2009, WOULD BE SQUARELY APPLICABLE. 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. AFTE R CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, W E ARE OF THE OPINION THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT. T HAT IN THE CASE OF ERICSSON A.B., NEW DELHI (SUPRA), HON'BLE JURISDICTIONA L HIGH COURT HELD AS UNDER:- ITA-5253/DEL/2011 & OTHERS 14 ONCE ONE PROCEEDS ON THE BASIS OF AFORESAID FACTUAL FINDINGS, IT IS DIFFICULT TO HOLD THAT PAYMENT MADE T O THE ASSESSEE WAS IN THE NATURE OF ROYALTY EITHER UNDER THE A CT OR UNDER THE DTAA. IT IS APPARENT THAT WHAT WAS SOLD B Y THE ASSESSEE TO THE INDIAN CUSTOMERS WAS A GSM WHICH CONSISTED BOTH OF THE HARDWARE AS WELL AS THE SOFTWARE, THEREFORE, THE TRIBUNAL IS RIGHT IN HOLDING THAT IT WAS NOT PERMISSIBLE FOR THE REVENUE TO ASSESS THE SAME UNDER TWO DIFFERENT ARTICLES. THE SOFTWARE THAT WAS LOADED ON TH E HARDWARE DID NOT HAVE ANY INDEPENDENT EXISTENCE. THE SOFTWARE SUPPLY IS AN INTEGRAL PART OF THE GSM MOBILE TELEPHONE SYSTEM AND IS USED BY THE CELLULAR OPERATOR F OR PROVIDING THE CELLULAR SERVICES TO ITS CUSTOMERS. THERE COULD NOT BE ANY INDEPENDENT USE OF SUCH SOFTWARE. THE SOFTWA RE IS EMBODIED IN THE SYSTEM AND THE REVENUE ACCEPTS THAT IT COULD NOT BE USED INDEPENDENTLY. THIS SOFTWARE MERELY FACILITATES THE FUNCTIONING OF THE EQUIPMENT AND IS A N INTEGRAL PART THEREOF. A FORTIORARI WHEN THE ASSESSEE SUPPLIES THE SOFTWARE WHICH IS INCORPORATED ON A CD, IT HAS SUPPLIED TANGIBLE PROP ERTY AND THE PAYMENT MADE BY THE CELLULAR OPERATOR FOR ACQUIRING SUCH PROPERTY CANNOT BE REGARDED AS A PAY MENT BY WAY OF ROYALTY. IT IS ALSO TO BE BORNE IN MIND THAT THE SUPPLY CONTRAC T CANNOT BE SEPARATED INTO TWO VIZ. , HARDWARE AND SOFTWARE. NO DOUBT, IN AN ANNEXURE TO THE SUPPLY CONTRACT THE LUMP SUM PRICE IS BIFURCATED IN TWO COMPONENTS, VIZ., THE CONSIDERATION FOR THE SUPPLY OF THE EQUIPMENT AND FOR THE SUPPLY OF THE SOFTWARE. HOWEVER, IT WAS ARGUED BY THE ASSESSEE THAT THIS SEPARATE SPECIFICATION OF THE HARDWARE/SOFTWARE SUPPLY WAS NECESSARY BECAUSE OF THE DIFFERENTIAL CUSTOMS DUTY PAYABLE. BE AS IT MAY, IN ORDER TO QUALIFY AS ROYALTY PAYMENT , WITHIN THE MEANING OF SECTION 9(1)( VI ) AND PARTICULARLY CLAUSE ( V ) OF EXPLANATION - II THERETO, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF ANY LICENSE) IN RESPECT OF COPY RIGHT OF A LITERAR Y, ARTISTIC OR SCIENTIFIC WORK. SECTION 2( O ) OF THE COPYRIGHT ACT MAKES IT CLEAR THAT A COMPUTER PROGRAMME IS TO BE REGARDED AS A ITA-5253/DEL/2011 & OTHERS 15 LITERARY WORK. THUS, IN ORDER TO TREAT THE CONSIDERAT ION PAID BY THE CELLULAR OPERATOR AS ROYALTY, IT IS TO BE ESTAB LISHED THAT THE CELLULAR OPERATOR, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LIT ERARY WORK. IN THE PRESENCE CASE, THIS HAS NOT BEEN ESTABLISHED . IT IS NOT EVEN THE CASE OF THE REVENUE THAT ANY RIGHT CONTEMPLATED UNDER SECTION 14 OF THE COPYRIGHT ACT,1 957 STOOD VESTED IN THIS CELLULAR OPERATOR AS A CONSEQUENCE OF THE SUPPLY CONTRACT. DISTINCTION HAS TO BE MADE BETWEE N THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRI GHTED ARTICLE'. 16. SIMILAR VIEW IS EXPRESSED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA), WHEREIN THEIR LORD SHIPS HELD AS UNDER:- 86. THE LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON-EXCLUSIVE, NON-TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICEN SEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKU P PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MADE SH ALL INCLUDE INFRASOFT S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENCE AUTHORISATI ON DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITHO UT THE CONSENT OF THE ASSESSEE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUBLICENSED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE- ENGINEER THE SOFTWARE WITHOUT INFRASOFT S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. ALL COPYRIGHT S AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. ITA-5253/DEL/2011 & OTHERS 16 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NEC ESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHT S (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT O F COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALT Y, IT IS TO BE ESTABLISHED THAT THE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS O F SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A COPYRIGHTED ARTICLE'. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COPYR IGHTED. COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTA NCE, SUCH AS A MANUSCRIPT. JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF AL L OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT. COP YRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CONSIDERATION PAID FOR COPYRIGHTED ARTICLE. THIS SA LE CONSIDERATION IS FOR PURCHASE OF GOODS AND IS NOT ROYALT Y. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO TH OSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRA M. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDOM ACCESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTILIZI NG THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS O F COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFE CTIVE OPERATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSAC TION FOR TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INCOME IN ACCORDANCE WI TH ARTICLE 7. 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PAID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRA NSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED A RTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NO T THE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATI ON TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIG HTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE T HE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON-EX CLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORI TY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAIN ED IN ITA-5253/DEL/2011 & OTHERS 17 ARTICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO RESTRICT USE OF THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY . MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE TH E BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WIT HOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY D OES NOT, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COPYRIGHT. THE TRANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE CONFERMENT OF THE RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE TRANSFEREE/LICENSE E SHOULD ACQUIRE RIGHTS EITHER IN ENTIRETY OR PARTIALLY CO- EXTENSIVE WITH THE OWNER/ TRANSFEROR WHO DIVESTS HIMSEL F OF THE RIGHTS HE POSSESSES PRO TANTO. 17. THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL WI TH THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. THOUG H THE LEARNED COUNSEL FOR THE ASSESSEE HAS GIVEN ALL THE AGREEMENTS BET WEEN THE ASSESSEE AND BUYERS, HOWEVER, AT THE TIME OF HEARING BEF ORE US, ONLY ONE OR TWO AGREEMENTS WERE REFERRED AND IT WAS ADMIT TED BY BOTH THE PARTIES THAT THE CLAUSES OF ALL THE AGREEMENTS ARE MORE OR LESS SIMILAR. WE, THEREFORE, REFER HEREIN BELOW ONLY ONE AGREEMEN T BETWEEN THE ASSESSEE AND STERLITE OPTICAL TECHNOLOGIES LTD. 18. THE AGREEMENT IS DATED 9 TH APRIL, 2007. AS PER PAGE 4 PARAGRAPH-C OF THE AGREEMENT, THE SUPPLIER, I.E., TH E ASSESSEE, UNDERTAKES TO SUPPLY EQUIPMENTS AS DEFINED IN THE AGRE EMENT. THE DEFINITION OF THE AGREEMENT IS AT PAGE 5 PARAGRAPH ( E) WHICH READS AS UNDER:- (E) EQUIPMENT SHALL MEAN THE ALL HARDWARE, SOFTWAR E, MATERIAL AND COMPONENTS TO BE SUPPLIED BY THE SUPPLIE R AS DESCRIBED IN ANNEXURE 1 (EQUIPMENT LIST). ITA-5253/DEL/2011 & OTHERS 18 19. THUS, THE EQUIPMENT INCLUDES HARDWARE AS WELL AS SOF TWARE BOTH. SOFTWARE IS DEFINED AT PAGE 6 PARAGRAPH (O) OF THE A GREEMENT AND IT READS AS UNDER:- (O) SOFTWARE SHALL MEAN THE SET OF PROGRAM EMBEDDE D IN THE EQUIPMENT NECESSARY FOR THE CONTROL, OPERATION AND PERFORMANCE OF THE EQUIPMENT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SPECIFICATION AND LICENSED OR SUB- LICENSED BY SUPPLIER TO BUYER UNDER THIS CONTRACT. 20. FROM THE ABOVE DEFINITION, IT IS EVIDENT THAT TH E SOFTWARE IS THE SET OF PROGRAM EMBEDDED IN THE EQUIPMENT NECESSARY FOR CONTROL, OPERATION AND PERFORMANCE OF THE EQUIPMENT. AS PER PAGE 12 PARAGRAPH 5.1, THE TOTAL CONTRACT PRICE OF SUPPLY OF EQUIPMENTS FOR PHASE I BY THE SUPPLIER IS USD 15,749,438.97. THUS, TH ERE IS A CONSOLIDATED PRICE FOR THE SUPPLY OF EQUIPMENT WHICH CONSISTS OF HARDWARE AND SOFTWARE BOTH. PAGE 14 OF THE AGREEMEN T PARAGRAPH 5.8.4.3 AND 5.8.4.4 PROVIDE FOR THE PAYMENT SCHEDULE WHICH READS AS UNDER:- 5.8.4.3 SECOND PAYMENT OF 20% OF THE COST OF EQUIPMENT (HARDWARE) AND 50% OF THE COST OF EQUIPMEN T (SOFTWARE) ON 60 TH DAY FROM PRESENTATION OF FOLLOWING DOCUMENTS AFTER COMPLETION OF VALIDATION BY MTNL TEST ING TEAM. FOLLOWING DOCUMENT WILL BE ATTACHED FOR NEGO TIATION OF THIS PAYMENT. (I) VALIDATION TEST CERTIFICATE ISSUED BY MTNL. IN CASE OF DEDUCTION OF LIQUIDATED DAMAGES BY MTNL, T HE BUYER WILL SUBMIT THE DOCUMENTARY PROOF ISSUED BY MTNL OF SUCH DEDUCTION TO BANK AND THE SAME WILL BE ADJUSTED FROM THE SECOND PAYMENT. SECOND PAYMENT SHALL BE MADE ONLY AFTER FIRST PAYMENT IS RELEASED TO SUPPLIER. ITA-5253/DEL/2011 & OTHERS 19 5.8.4.4 THIRD PAYMENT OF 10% OF COST OF EQUIPMENT (HARDWARE) AND 30% OF EQUIPMENT (SOFTWARE) SHALL BE PAID ON 60 TH DAY FROM SUBMISSION OF FOLLOWING DOCUMENTS - I) ACCEPTANCE TEST CERTIFICATE ISSUED BY MTNL FOR ENTI RE CITY OF DELHI/MUMBAI. II) CERTIFICATE ISSUED BY MTNL FOR COMPLIANCE OF 30% VALUE ADDITION AS PER THE TENDER CONDITION. IN CASE OF DEDUCTION OF LIQUIDATED DAMAGES BY MTNL ON INSTALLATION AND COMMISSIONING, THE BUYER WILL SUBMIT SU CH DOCUMENTARY PROOF ISSUED BY MTNL OF SUCH DEDUCTION TO BANK AND THE SAME WILL BE ADJUSTED FROM THE THIRD PAYMENT. ANY LD ON ACCOUNT OF BUYER THAT IS DEDUCTED FROM THE SUPPLIERS SECOND PAYMENT WILL BE SETTLED DULY PAID TO SUPPLIER IN THE THIRD PAYMENT. 21. LEARNED DR, WITH REFERENCE TO ABOVE PARAGRAPHS A S WELL AS THE SCHEDULE TO THE AGREEMENT, POINTED OUT THAT THERE IS A SEPARATE PRICE AS WELL AS SEPARATE PAYMENT SCHEDULE IN RESPECT OF COST OF EQUIPMENT, I.E., HARDWARE AND COST OF EQUIPMENT I.E., SOFTWARE. PAGE 39 PARAGRAPH 25.8 OF THE AGREEMENT READS AS UNDER:- 25.8 IN RESPECT TO THE EQUIPMENT CONTAINING SOFT WARE ACQUIRED UNDER THIS CONTRACT, THE BUYER IS HEREBY GRA NTED A NON-EXCLUSIVE, NON-TRANSFERABLE AND NON-SUB-LICENSABL E LICENSE TO USE THE SOFTWARE. BUYER IS GRANTED NO TIT LE OR OWNERSHIP RIGHTS OR INTERESTS IN THE SOFTWARE, WHERE SUC H TITLE, RIGHTS AND/OR INTEREST IN THE SOFTWARE SHALL RE MAIN WITH THE SUPPLIER OR SUPPLIERS SUPPLIER AT ALL TIMES. 22. FROM THE ABOVE, IT IS EVIDENT THAT THE EQUIPMENT , I.E., THE HARDWARE SUPPLIED BY THE ASSESSEE CONTAINED THE SOFTWARE AND THE SOFTWARE WAS NOT SEPARATELY SUPPLIED. MOREOVER, THE B UYER IS GRANTED A NON-EXCLUSIVE, NON-TRANSFERABLE AND NON-SUB-LICENSAB LE LICENSE TO USE THE SOFTWARE. IT IS ALSO CLARIFIED THAT BUYER IS GRANT ED NO TITLE OR ITA-5253/DEL/2011 & OTHERS 20 OWNERSHIP RIGHTS OR INTEREST IN THE SOFTWARE. AFTER RE ADING THE AGREEMENT BETWEEN THE ASSESSEE AND THE BUYERS, ESPECIALLY THE CLAUSES WHICH ARE REFERRED ABOVE, WE ARE OF THE OPINI ON THAT THE FACTS IN THE CASE OF THE ASSESSEE AND THE FACTS IN THE CASES BEF ORE THE HON'BLE JURISDICTIONAL HIGH COURT ARE IDENTICAL. TH E ONLY GROUND STRESSED UPON BY THE LEARNED DR WAS TO POINT OUT THE B IFURCATION OF THE CONTRACT PRICE BETWEEN THE HARDWARE AND SOFTWARE. W E FIND THAT THE FACTS WERE IDENTICAL BEFORE THE HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF ERICSSON A.B., NEW DELHI (SUPRA). IN VIEW OF T HE ABOVE, WE, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF ERICSSON A.B., NEW DELHI (SUPRA) AND INF RASOFT LTD. (SUPRA), HOLD THAT THERE WAS ONLY ONE CONTRACT FOR SUP PLY OF EQUIPMENT WHICH INCLUDED HARDWARE AND SOFTWARE BOTH AND, THERE FORE, THE INCOME FROM SUPPLY OF THE EQUIPMENT IS TO BE ASSESSED AS BUSINESS IN COME ARISING FROM THE ASSESSEES BUSINESS CONNECTION/PE IN INDIA. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO REWORK OUT T HE ASSESSEES INCOME ACCORDINGLY. 23. GROUND NO.8 OF THE ASSESSEES APPEAL READS AS UNDER:- 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234A AND 234B OF THE ACT. 8.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT FOLLOWING THE D ECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF JACOBS CIV IL INCORPORATED (2010) ITA NO.491.2008(DEL). THE LEAR NED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF T HE ACT ON THE APPELLANT. 24. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL ARGUED ONLY WITH REGARD TO INTEREST UNDER SECTION 234B AND NO AR GUMENT WAS ADVANCED AGAINST THE CHARGEABILITY OF INTEREST UNDER SECTION 234A. SO ITA-5253/DEL/2011 & OTHERS 21 FAR AS INTEREST UNDER SECTION 234B IS CONCERNED, IT I S SUBMITTED BY THE LEARNED COUNSEL THAT THE ASSESSEE IS A NON-RESIDENT AND FR OM THE ENTIRE RECEIPT, TDS WAS DEDUCTIBLE. THEREFORE, THE ASSESSEE WA S NOT LIABLE TO PAY THE ADVANCE TAX AND CONSEQUENTLY, ONCE THE ASSESSEE WAS NOT LIABLE TO PAY THE ADVANCE TAX, THE LIABILITY TO PAY THE INTEREST UNDER SECTION 234 CANNOT BE FASTENED UPON THE ASSESSEE. HE SUB MITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF D IT VS. JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION [2010] 194 TAXM AN 495 (DELHI). HE, THEREFORE, SUBMITTED THAT THE INTEREST UNDER SECT ION 234B SHOULD BE CANCELLED. 25. LEARNED DR, ON THE OTHER HAND, POINTED OUT THAT THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT HAS BEEN CONSIDERED AND DISTINGUISHED BY HON'BLE JURISDICTIONAL HIGH COURT IN A SUBSEQUENT DECISION IN THE CASE OF DIT-I, INTERNATIONAL TAXATION VS. ALCATEL LUCENT USA, INC. AND ANOTHER VIDE ITA NO.327/2012, 330/201 2, 338/2012 AND 339/2012. IN THEIR ORDER DATED 7 TH NOVEMBER, 2013, THEIR LORDSHIPS HAVE HELD THAT WHEN AN ASSESSEE IN THE RETURN OF INCOME HAS CLAIMED THAT ITS INCOME IS NOT TAXABLE, THEN IT CAN BE PRESUME D THAT THE ASSESSEE MUST HAVE REPRESENTED TO ITS INDIAN TELECOM DEALE RS NOT TO DEDUCT TAX FROM THE REMITTANCES MADE TO IT. IN THIS REGARD, HE REFERRED TO PARAGRAPH 21 AND 25 OF THE DECISION OF HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF ALCATEL LUCENT USA, INC. (SUPRA) . 26. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. IT I S TRUE THAT THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JACABS CIVIL INCORPORATED (SUPRA) IS IN FAVOUR OF THE ASSESSEE. HOWE VER, THIS DECISION HAS BEEN CONSIDERED BY THEIR LORDSHIPS SUBSEQUEN TLY IN THE ITA-5253/DEL/2011 & OTHERS 22 CASE OF ALCATEL LUCENT USA, INC. (SUPRA) WHEREIN, AT PARAGRAPH 21, THEIR LORDSHIPS HELD AS UNDER:- 21. WE ARE UNABLE TO UPHOLD THIS PART OF THE DECISIO N OF THE TRIBUNAL. IT MUST BE REMEMBERED THAT IN THE NOTE APPENDED TO THE RETURN THE ASSESSEE WAS QUITE CATEGORICA L IN DENYING ITS LIABILITY TO BE ASSESSED IN INDIA. IT RE LIED ON THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND USA AND POINTED OUT THAT THERE WAS NO PERMANENT ESTABLISHMENT IN INDIA. IT FURTHER STATED THAT THE TEL ECOM EQUIPMENTS WERE SOLD OUTSIDE INDIA AND THE PAYMENTS WERE ALSO RECEIVED OUTSIDE INDIA AND THUS THE ASSESSEE DID NOT HAVE ANY TAXABLE PRESENCE IN INDIA SO AS TO BE LIA BLE FOR TAX ON ITS INDIAN INCOME. IF THIS WAS THE STAND OF THE ASSESSEE, IT IS NOT IMPERMISSIBLE OR UNREASONABLE TO VISUALISE A SITUATION WHERE, THE ASSESSEE WOULD HAVE REPRESENTED TO ITS INDIAN TELECOM DEALERS NOT TO DEDUC T TAX FROM THE REMITTANCES MADE TO IT. ON THE CONTRARY IT WOULD BE SURPRISING IF THE ASSESSEE DID NOT MAKE ANY SUCH REPRESENTATION; SUCH A REPRESENTATION WOULD ONLY BE CONSISTENT WITH THE ASSESSEE'S STAND REGARDING ITS TAX LIABILITY IN INDIA. MOREOVER, NO PURPOSE WOULD HAVE BEEN SERVED BY THE ASSESSEE TAKING SUCH A CATEGORICAL STAND REGARDING ITS TAX LIABILITY IN INDIA AND AT THE SAME TIME SUFFERING TAX DEDUCTION UNDER SECTION 195(1). THEREF ORE, IN OUR OPINION, EVEN THOUGH THERE MAY NOT BE ANY POSITI VE OR DIRECT EVIDENCE TO SHOW THAT THE ASSESSEE DID MAKE A REPRESENTATION TO ITS INDIAN TELECOM DEALERS NOT TO DE DUCT TAX FROM THE REMITTANCES, SUCH A REPRESENTATION OR INF ORMAL COMMUNICATION OF THE REQUEST CAN BE REASONABLY INFERR ED OR PRESUMED. THE TRIBUNAL OUGHT TO HAVE ACCORDED DUE WEIGHTAGE TO THE STRONG POSSIBILITY OR PROBABILITY OF SUCH A REQUEST HAVING BEEN MADE BY THE ASSESSEE TO THE INDIAN PAYERS SINCE OTHERWISE THE DENIAL OF ITS TAX LIABILITY ON ITS INDIAN INCOME WOULD HAVE SERVED LITTLE PURPOSE FOR TH E ASSESSEE. 27. FROM THE ABOVE, IT IS EVIDENT THAT WHAT WAS THE ST AND OF THE ASSESSEE IN THE RETURN OF INCOME FILED BY IT WOULD BE R ELEVANT FOR DECIDING THE LIABILITY TO INTEREST UNDER SECTION 234 B. WE FIND THAT THIS ASPECT HAS NOT BEEN CONSIDERED EITHER BY THE ASSESSING OFF ICER OR BY THE LEARNED DRP. IN FACT, THE DECISION OF HON'BLE J URISDICTIONAL HIGH ITA-5253/DEL/2011 & OTHERS 23 COURT IN THE CASE OF ALCATEL LUCENT USA, INC. (SUPRA) IS DATED 7 TH NOVEMBER, 2013, THEREFORE, THIS DECISION WAS NOT AVAIL ABLE AT THE TIME WHEN EITHER THE ASSESSING OFFICER OR THE DRP PASSED THE O RDER. IN OUR OPINION, IT WOULD MEET THE ENDS OF JUSTICE IF THIS MAT TER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO READJUDICATE THE ISSUE AFTER TAKING INTO ACCOUNT THE DECISIONS OF HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF JACABS CIVIL INCORPORATED ( SUPRA) AND ALCATEL LUCENT USA, INC. (SUPRA). WE, THEREFORE, SET ASIDE TH E ORDERS OF AUTHORITIES BELOW WITH REFERENCE TO LEVY OF INTEREST UNDER SECTION 234B OF THE ACT AND DIRECT THE ASSESSING OFFICER TO ALLOW AD EQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THEREAFTER , HE WILL READJUDICATE THE ISSUE IN THE LIGHT OF THE RATIO OF T HE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JACA BS CIVIL INCORPORATED (SUPRA) AND ALCATEL LUCENT USA, INC. (SU PRA). WITH REGARD TO INTEREST CHARGED UNDER SECTION 234A, NO SPECIFIC ARGUMENT WAS ADVANCED AT THE TIME OF HEARING BEFORE US. WE, THER EFORE, DIRECT THE ASSESSING OFFICER TO REWORK OUT THE SAME IN ACCORDANCE W ITH LAW AFTER FINAL DETERMINATION OF INCOME. 28. GROUND NO.9 RAISED BY THE ASSESSEE IS OF GENERAL NATU RE AND NEEDS NO ADJUDICATION. ITA NO ITA NO ITA NO ITA NOS.5254 TO 5256 S.5254 TO 5256 S.5254 TO 5256 S.5254 TO 5256/DEL/2011 /DEL/2011 /DEL/2011 /DEL/2011 ( ( ( (ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEALS SS S FOR AY 2006 FOR AY 2006 FOR AY 2006 FOR AY 2006- -- -07, 07, 07, 07, 2007 2007 2007 2007- -- -08 & 2008 08 & 2008 08 & 2008 08 & 2008- -- -09 0909 09) : ) :) : ) :- -- - 29. GROUND NOS.1 TO 9 RAISED BY THE ASSESSEE IN ITA NO.5254/DEL/2011 & 5256/DEL/2011 AND GROUND NOS.1 TO 8 RAISED BY THE ASSESSEE IN ITA NO.5255/DEL/2011 ARE IDENTICAL TO T HE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.5253/DEL/2011 DISPOSED O F BY US IN THE EARLIER PORTION OF THIS ORDER. FOR THE DETAILED DISCUSSION AND REASONS RECORDED ABOVE ITA-5253/DEL/2011 & OTHERS 24 (I) GROUND NOS.1 TO 3 RAISED IN THESE THREE APPEALS NEED NO ADJUDICATION FOR THE REASONS GIVEN IN PARAGRAPH 3 ABO VE. (II) GROUND NO.4 RAISED IN THESE THREE APPEALS IS REJECTED. (III) GROUND NOS.5 & 6 RAISED BY THE ASSESSEE IN THESE THREE APPEALS ARE REJECTED. (IV) THE ISSUE RAISED VIDE GROUND NO.7 RAISED IN THESE THREE APPEALS IS RESTORED TO THE FILE OF THE ASSESSING OFFICER F OR RECOMPUTATION OF INCOME AS PER OUR DIRECTION GIVEN I N PARAGRAPH 22 ABOVE. (V) THE ISSUE RAISED VIDE GROUND NO.8 BY THE ASSESSEE IN ITA NO.5254/DEL/2011 AND 5256/DEL/2011 IS RESTORED TO TH E FILE OF THE ASSESSING OFFICER FOR READJUDICATION AS PER OUR DIRECTION GIVEN IN PARAGRAPH 27 ABOVE. (VI) GROUND NO.8 IN ITA NO.5255/DEL/2011 AND GROUND NO. 9 IN ITA NOS.5254/DEL/2011 & 5256/DEL/2011 NEED NO ADJUDICATION. 30. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE TREATE D TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. SINCE WE HAVE ALREADY DISPOSED OF THE APPEALS OF T HE ASSESSEE AS ABOVE, THE STAY APPLICATIONS FILED BY IT HAVE BECOM E INFRUCTUOUS AND, ARE ACCORDINGLY, DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2014. SD/- SD/- ( (( (ABY T. VARKEY ABY T. VARKEY ABY T. VARKEY ABY T. VARKEY) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 21.03.2014 VK. ITA-5253/DEL/2011 & OTHERS 25 COPY FORWARDED TO: - 1. ASSESSEE : M/S HUAWEI TECHNOLOGIES CO., LTD., M/S HUAWEI TECHNOLOGIES CO., LTD., M/S HUAWEI TECHNOLOGIES CO., LTD., M/S HUAWEI TECHNOLOGIES CO., LTD., ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, ADMINISTRATION BUILDING, HEADQUARTERS OF HUAWEI TECHNOLOG HEADQUARTERS OF HUAWEI TECHNOLOG HEADQUARTERS OF HUAWEI TECHNOLOG HEADQUARTERS OF HUAWEI TECHNOLOGIES CO., LTD., IES CO., LTD., IES CO., LTD., IES CO., LTD., BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, BANTIAN, LONGGANG DISTRICT, SHENZHEN, 518129, P.R. CHINA. P.R. CHINA. P.R. CHINA. P.R. CHINA. 2. REVENUE : ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, 3(2), INTERNATIONAL TAXATION, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR