DCIT (International Taxation), New Delhi V. M/s. Qualcomm Incorporated, Hyderabad

ITA 6732/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5612 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G K DHAL
• Keywords: Business income; Double taxation relief; Principle of natural justice; Deemed to accrue or arise in india; Additional evidence; Permanent establishment; Initiation of penalty proceedings; Onus to prove
• Section: 143(3); 153A; 234B

Judgement Text

QUALCOMM INCORPORATED VS DDIT, ITA NO. 5353/DEL/2012, 1241/DEL/2014 , 7064/DEL/2014 , 189/DEL/2016 A. Y. 2009 - 10 TO 2012 - 13 DCIT VS QUALCOMM INCORPORATED ITA NO. 6732/DEL/2015 AY 2012 - 13 PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5353/DEL/2012 (ASSESSMENT YEAR : 2009 - 10 ) QUALCOMM INCORPORATED, C/O. SR BAT L IBOI & CO. OVAL OFFICE, 18, ILABS CENTRE, HITECH CITY, MADHAPUR , HYDERABAD PAN: AAACQ1484H VS. DDIT, CIRCLE - 2(1), INTERNATIONAL TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 1241/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) QUALCOMM INCORPORATED, C/O. SR BATLIBOI & CO. OVAL OFFICE, 18, ILABS CENTRE, HITECH CITY, MADHAPUR , HYDERABAD PAN: AAACQ1484H VS. A DDIT, RANGE - 2, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 7064/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) QUALCOMM INCORPORATED, C/O. SR BATLIBOI & CO. OVAL OFFICE, 18, ILABS CENTRE, HITECH CITY, MADHAPUR , HYDERABAD PAN: AAACQ1484H VS. DCIT, CIRCLE - 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 189/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) QUALCOMM INCORPORATED, C/O. SR BATLIBOI & CO. OVAL OFFICE, 18, ILABS CENTRE, VS. DCIT (INTERNATIONAL TAXATION, CIRCLE - 3(1)(1), PAGE | 2 HITECH CITY, MADHAPUR , HYDERABAD PAN: AAACQ1484H NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 6732/DEL/2015 (ASSESSMENT YEAR: 2012 - 13) DCIT (INTERNATIONAL TAXATION, CIRCLE - 3(1)(1), NEW DELHI VS. QUALCOMM INCORPORATED, C/O. SR BATLIBOI & CO. OVAL OFFICE, 18, ILABS CENTRE, HITECH CITY, MADHAPUR, HYDERABAD PAN: AAACQ1484H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PERCY PARDIWALA, SR. ADV MS. JASMIN, ADV SHRI NAVEEN AGARWAL, FCA MS BUSRATH FARHEEN, CA REVENUE BY: SHRI G. K. DHAL, CIT DR DATE OF HEARING 18/01/2018 DATE OF PRONOUNCEMENT 1 6 / 0 4 / 2018 O R D E R PER PRASHANT MAHARISHI, A. M. 1. TH ESE ARE THE BUNCH OF 5 APPEALS OUT OF WHICH 4 APPEALS ARE FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009 10 TO ASSESSMENT YEAR 2012 13 AND ONE APPEAL FILED BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2012 13. AS ALL THESE APPEALS INVOLVE COMMON ISSUE, WE HAVE HEARD THEM TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. WE FIRST SET OUT THE FACTS FOR AY 2009 - 10, THEN DECIDE THE ISSUES FOR THAT YEAR, AND APPLY OUR DECISION FOR OTHER YEARS. ITA NO 5353/ DEL/2012 A Y 2009 - 10 2. T HIS APPEAL IS FILED BY QUALCOMM INCORPORATED, APPELLANT ASSESSEE, AGAINST THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009 10 DATED 30/08/2012 MADE BY THE DEPUTY DIRECTOR OF INCOME TAX, CIRCLE 2 (1), INTERNATIONAL TAX, NEW DELHI (HEREINAFTER REFERRED TO AS THE LD. AO) UNDER SECTION 143 (3) READ WITH SECTION 144C (13) OF THE INCOME TAX ACT PAGE | 3 (HEREINAFTER REFERRED TO AS THE ACT ) IN PURSUANCE OF DIRECTIONS PASSED UNDER SECTION 144C (5) OF THE ACT ON 12/7/2012 OF THE LD. DISPUTE RESOLUTION PANEL II, NEW DELH I (HEREINAFTER REFERRED TO AS THE LD. DRP). THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ERRED IN APPLYING THE PROVISIONS OF SECTION 9(L)(VI)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AND ARTICLE 12(7) OF INDIA - US TAX TREATY ('TAX TREATY') FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE ORIGINAL EQUIPMENT MANUFACTURERS ('OEMS') SITUATED OUTSIDE INDIA FOR THE PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA MOBILE HANDSETS OUTSIDE INDIA. 2. ERRED IN APPLYING THE PR OVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT AND ARTICLE 12(7) OF THE TAX TREATY FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FRO M THE OEMS SITUATED OUTSIDE INDIA FOR THE PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA NETWORK EQUIPMENT OUTSID E INDIA. 3. ERRED IN HOLDING THAT THE REVENUES RECEIVED BY THE APPELLANT UNDER THE BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT IS TAXABLE AS ROYALTY INCOME IN INDIA UNDER SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF THE INDIA - USA TAX TREATY. 4. ERR ED IN LAW ON INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(L ) ( C) OF THE ACT. FACTS OF THE CASE 3. THE RELEVANT FACTS OF THE CASE ARE THAT ASSESSEE WAS INCORPORATED IN THE STATE OF DELAWARE IN THE UNITED STATES OF AMERICA ON 15/8/1991. IT ENGAGES IN T HE DESIGN, DEVELOPMENT, MANUFACTURE, MARKETING AND LICENSING OF DIGITAL WIRELESS TELECOMMUNICATION PRODUCTS AND SERVICES BASED ON ITS CODE DIVISION MULTIPLE ACCESS (CDMA) TECHNOLOGY. WORLDWIDE ITS EXTENSIVE PORTFOLIO IS MORE THAN 6200 US PATENTS AND PATENT APPLICATIONS FOR CDMA AND OTHER TECHNOLOGIES. IT HAS FOUR PRINCIPAL BUSINESS UNITS OF CDMA TECHNOLOGIES, TECHNOLOGY LICENSING, WIRELESS AND INTERNET SERVICES AND STRATEGIC INITIATIVES. ITS REVENUE STREAM FOR THE YEAR ARE AS UNDER: - SERIAL NUMBER NATURE OF INCOME AMOUNT IN RUPEES 1 INVOICED UNDER BREW OPERATOR AGREEMENT WITH TATA TELE SERVICES LTD RS. 55216185/ 2 AMOUNT RECEIVED FROM RELIANCE UNDER BREW CARRIER OPERATOR AGREEMENT RS. 1 263 2500/ PAGE | 4 4. THE ASSESSEE FILED ITS RETURN OF INCOME ON 8/9/2010 DECLARING TOTAL INCOME OF RUPEES NIL . ACCORDING TO THE ASSESSEE THE ABOVE , INCOME EARNED BY THE ASSESSEE MENTIONED AT SERIAL NO. 1 AND 2 OF THE ABOVE TABLE ARE NOT TAXABLE IN INDIA. THE MAIN REASON GIVEN BY THE ASSESSEE IS THAT ABOVE INCOME BASED ON THE NATURE OF SERVICES RENDERED BY ASSESSEE TO TATA AND RELIANCE , THE PROVISIONS OF ARTICLE 12 OF INDO USA DTAA ARE SECTION 9(1)(V)(C) ARE NOT IN THE NATURE OF ROYALTIES/FEES FOR INCLUDED SERVICES. HENCE , ACCORDING TO THE ASSESSEE THEY ARE NOT TAXABLE IN INDIA. 5. IT IS IMPORTANT TO NOTE THE ASSESSMENT HISTORY IN CASE OF THIS ASSESSEE TO CULL OUT THE CONTROVERSY INVOLVED IN THE PRESENT APPEALS. UNDISPUTEDLY THE ASSESSING OFFICER HAS ALSO NOTED THE SAME AT PAGE NO. 3 TO 5 OF THE ASSESSMENT ORDER AS UNDER: - 2. ASSESSMENT HISTORY OF THE ASSESSEE IN THE EARLIER YEARS, THE AO HAS MADE THE FOLLOWING OBSERVATIONS: - (A) THE PAYMENT RECEIVED BY THE ASSESSEE UNDER THE BREW O PERATOR SOFTWARE (WITH RELIANCE AS WELL AS TATA TELE SERVICES) QUALIFIES AS ROYALTY AS PER THE INDIAN INCOME TAX AS WELL AS INDIA US DTAA. THE REASONS HAVE BEEN MENTIONED IN DETAIL IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2008 09 AND ALSO IN THE EARLI ER ASSESSMENT ORDERS. (B) THE INCOME OF THE ASSESSEE FROM LICENSING OF B R EW SOFTWARE TO TATA TELE SERVICES AND RELIANCE IS TAXABLE UNDER SECTION 9 (1) ( VI ) OF THE INCOME TAX ACT AND UNDER ARTICLE 12 OF INDO US DTAA. THE TAX PAYABLE IS AT THE RATE OF 15% AS PER PARAGRAPH 2 OF ARTICLE 12. (C) TWO IMPORTANT STREAMS OF ASSESSEES INCOME EARNED FROM QUALCOMM CDMA TECHNOLOGIES (QCT) WHICH DEVELOPS AND SUPPLIES CDMA - BASED INTEGRATED CIRCUITS AND SYSTEMS SOFTWARE FOR WIRELESS VOICE AND DATA COMMUNICATIONS, MULTIMEDIA FUNCT IONS AND GLOBAL POSITIONING SYSTEM PRODUCTS AND QUALCOMM TECHNOLOGIES LICENSING (QTL) WHICH GRANTS LICENCES TO MANUFACTURE OF WIRELESS PRODUCTS FOR THE RIGHT TO USE QUALCOMMS INTELLECTUAL PROPERTY PORTFOLIO, WHICH INCLUDES CERTAIN PAID RIGHTS ESSENTIAL TO AND/OR USEFUL IN THE MANUFACTURE AND SALE OF CERTAIN WIRELESS PRODUCTS. IN THE EARLIER PAGE | 5 YEAR ASSESSMENT PROCEEDINGS, THE INCOME FROM CDMA HANDSETS AND CDMA INFRASTRUCTURE EQUIPMENTS AS BEEN TAXED BY THE AO AFTER OBSERVING THAT : - (I) UNDER THE PROVISIONS OF S ECTION 9 (1)( VI )(C) OF THE INCOME TAX ACT INCOME BY WAY OF ROYALTY PAYABLE BY A PERSON WHO IS A NON - RESIDENT WILL BE TAXABLE IN INDIA IF, WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSES OF BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA, OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. (II) SECTION 9 (1) ( VI ) OF THE INCOME TAX ACT IS A DEEMING PROVISION SEEKING TO TAX ROYALTY PAYABLE BY ONE NON - RESIDENT TO ANOTHER NON - RESIDENT IN RELATION TO INCOME EARNED FROM A SOURCE IN INDIA. UNDER THE PROVISIONS OF SECTION 9(1 ) ( VI ) ( C) OF THE ACT , IT IS NOT MANDATORY TO BRING THE PAYER TO TAX BEFORE INITIATING THE PROCEEDINGS AGAINST THE PERSON RECEI VING THE ROYALTY INCOME. (III) IN THIS CASE, WE ARE CONCERNED ONLY WITH THE ROYALTY PAID BY THE OEMS TO QUALCOMM BASED ON NETWORK EQUIPMENT/HANDSETS SOLD BY THEM TO PARTIES IN INDIA. IT IS NOT THE DEPARTMENTS CASE TO TAX THE ROYALTY ARISING OUT OF THE GLOBAL CO NTRACT BETWEEN OEMS AND QUALCOMM BUT ONLY SO MUCH OF ROYALTY, WHICH PERTAINS TO SALES MADE IN INDIA. THE SOURCE OF INCOME OF OEMS IS SALES MADE TO PARTIES IN INDIA BASED ON WHICH ROYALTIES ARE PAID TO QUALCOMM. THUS IN TERMS OF SECTION 9(1) ( VI ) (C) OF THE ACT ROYALTIES PAYABLE TO QUALCOMM ARE DEEMED TO ACCRUE OR ARISE IN INDIA. (IV) IN TERMS OF ARTICLE 12 (7) ( B ) OF THE DTAA BETWEEN INDIA AND USA, THE ROYALTY ARISING TO QUALCOMM IS CLEARLY TAXABLE IN INDIA. THE RELEVANT ARTICLE IS REPRODUCED AS UNDER: - PAGE | 6 WHERE UNDER SUBPARAGRAPH (A), ROYALTIES OR FEES FOR INCLUDED SERVICES DO NOT ARISE IN ONE OF THE CONTRACTING STATES, AND THE ROYALTIES RELATE TO THE USE OF, OR THE RIGHT TO USE, THE RIGHT OR PROPERTY, OR THE FEES FOR INCLUDED SERVICES RELATE TO SERVICES PERFORME D, IN ONE OF THE CONTRACTING STATES, THE ROYALTIES OR FEES FOR INCLUDED SERVICES SHALL BE DEEMED TO ARISE IN THAT CONTRACTING STATE. (V) IT IS NOT A CASE, WHERE THE ROYALTY HAS BEEN PAID ON LUMP SUM FOR THE USE OF CDMA TECHNOLOGY BUT IS AN ONGOING PAYMENT DEP ENDENT ON THE VOLUME OF SALES. THE RELEVANT CLAUSE OF THE AGREEMENT IS AS UNDER: - SOLD, SALE, SELL MEANS SOLD, LEASED OR OTHERWISE TRANSFERRED OR PUT INTO USE AND SALES SELL BE DEEMED TO HAVE BEEN OCCURRED UPON FIRSTS SHIPMENT, INVOICING OR PUTTING IN TO USE, WHICHEVER SHALL FIRST OCCUR. NOTWITHSTANDING THE FOREGOING, LICENSED PRODUCTS SHALL NOT BE DEEMED TO HAVE BEEN SOLD BY . LICENSEE .. FOR PURPOSES OF PAYING THE ROYALTIES TO QUALCOMM UNDER THESE AGREEMENT UNTIL SUCH TIME AS SUCH LICENSED PRODUCTS HAS BEEN (A) SOLD, LEASED, SHIPPED OR OTHERWISE TRANSFERRED TO A PERSON OR ENTITY OUTSIDE OF THE DEFINITION OF . LICENSEE . OR (B) PUT INTO USE BY ANYONE, INCLUDING BUT LIMITED TO BY LICENSEE . WHICHEVER SHALL FIRST OCCUR. (VI) IT HAS BEEN STATED THAT THE DEFINITION OF SALE COULD MEAN INVOICED, SHIPPED ETC AND SALE WOULD OCCUR UPON THE FIRST SUCH OCCURRENCES. THE FACT THAT SALE MEANS INVOICED, SHIPPED ETC BY ITSELF IMPLIES THAT THE PARTY HAS BEEN RECOGNIZED TO WHICH THE GOODS ARE INVOICED OR SHIPPED. IN THIS CASE, UNLESS THE OEMS HAS RAISED THE BILL/SHIPPED PAGE | 7 TO THE GOODS TO A PARTY IN INDIA I.E . TATA OR OTHER INDIAN CARRIERS NO ROYALTY WOULD BE PAYABLE TO QUALCOMM. THE ASSESSEES SUBMISSION THAT THE ROYALTY RECEIVED BY QUALCOMM IS INDEPENDENT OF WHETHER THE NETWORK EQUIPMENT/HANDSETS ARE SOLD INTO INDIA IS THEREFORE, INCORRECT AND ROYALTY CLEARLY ARISES AT THE TIME OF GOODS ARE SOLD TO A PARTICULAR CUSTOMER, IN THIS CASE CUSTOMERS IN INDIA. THE METHOD OF COMPUTATION CANNOT BE A BASI S FOR LEVY OF ROYALTY IS NOT CORRECT. THE METHOD OF COMPUTATION HAS BEEN LAID DOWN SEPARATELY AS PER THE DEFINITION OF NET SELLING PRICE AND THE CLAUSE ON ROYALTIES. THE POINT AT WHICH ROYALTIES ACCRUE OR BECOME PAYABLE IS CLEARLY WHEN THE PRODUCT IS SOLD OR PUT TO USE WHICHEVER IS FIRST. (VII) LASTLY, IT MAY BE SAID THAT THE ROYALTY FOR THE USE OF CDMA TECHNOLOGY IS ARISING IN INDIA BECAUSE THE SUBSCRIBER UNIT (HANDSETS) AND THE INFRASTRUCTURE EQUIPMENT IN WHICH THE CDMA TECHNOLOGY IS EMBEDDED ARE UTILIZED IN IN DIA. THE HANDSETS BY THEMSELVES WILL BE OF NO USE UNLESS THE NETWORK SERVICE PROVIDER ALSO INSTALLS THE INFRASTRUCTURE EQUIPMENT. (VIII) REGARDING THE CONTENTION RAISED BY THE ASSESSEE ON FACTUAL INACCURACIES CONTAINED IN THE CIT (A)S ORDER, IT WAS OBSERVED THAT THE SAME DOES NOT ALTER THE POSITION OF TAXABILITY OF THE ROYALTY INCOME IN INDIA UNDER THE PROVISIONS OF SECTION 9 (1) ( VI ) (C) OF THE ACT AS IT IS STILL AN ADMITTED FACT THAT ROYALTY ARISES TO QUALCOMM ONLY WHEN THE CUSTOMER IS IDENTIFIED BY THE OEMS. I N THE INDIAN SITUATION SINCE THE CUSTOMERS (TATA AND RELIANCE ) ARE BASED IN INDIA, THEY NECESSARILY CONSTITUTE A SOURCE OF INCOME FOR THE OEMS IN INDIA AND THE TAXABILITY UNDER THE DEEMING PROVISIONS OF SECTION 9 (1) ( VI ) ( C ) CANNOT BE DENIED/OVERLOOKED. PAGE | 8 (IX) T HE ABOVE POSITION IS STRENGTHENED AND IN VIEW OF THE ASSESSEES OWN SUBMISSION THAT THE INDIAN CARRIERS MAY REQUEST SPECIFIC FEATURES TO BE INCORPORATED IN THE PHONES TO BE SOLD IN INDIA. THEREFORE, WHETHER THE SPECIFIC FEATURES ARE DRIVEN BY THE ASSESSEE S TECHNOLOGY OR NOT IS IMMATERIAL SINCE THE PHONE WILL THEN UNEQUIVOCALLY BE SALEABLE ONLY TO INDIA THEREBY BRINGING CREATING A STRONG INDIAN NEXUS FOR SOURCE - BASED TAXATION. (X) IN VIEW OF THE ABOVE DISCUSSIONS, ROYALTIES ARISING TO QUALCOMM FROM THE SALE OF INFRASTRUCTURE EQUIPMENTS AND HANDSETS BY THE OEMS TO INDIAN CUSTOMERS IS TAXABLE IN INDIA AS PER SECTION 9(1)( VI ) AND ARTICLE 12 (7) ( B ) OF THE INDIA US TAX TREATY. (D) FOR THE EARLIER YEARS ASSESSMENT ORDERS, THE ASSESSEE HAD PREFERRED AN APPEAL BEFORE THE LD. CIT (A). THESE APPEALS WERE DISPOSED OF BY THE CIT (A) VIDE HIS CONSOLIDATED ORDER DATED 26/6/2009 AS UNDER: - I. CONFIRMED THE TAXABILITY OF ROYALTY EARNED BY THE ASSESSEE ON SALE OF HANDSETS BY OEMS TO INDIAN CARRIERS FOR THE ASSESSMENT YEAR 2000 01 T O ASSESSMENT YEAR 2006 07 II. ENHANCED THE TOTAL INCOME BY BRINGING TO TAX ROYALTY EARNED BY THE ASSESSEE ON SALE OF EQUIPMENT BY OEMS TO INDIAN CARRIERS AND ISSUED DIRECTIONS FOR QUANTIFICATION F OR ASSESSMENT YEAR 2000 01 TO ASSESSMENT YEAR 2005 06 III. GR ANTED PARTIAL RELIEF ON THE NUMBER OF HANDSETS ASSESSED TO TAX IN INDIA AND ALSO THE ROYALTY PER HANDSET (E) FOR ASSESSMENT YEAR 2008 09, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD DRP AGAINST THE PROPOSED VARIATIONS IN INCOME. THE DRP HAS CONFIRMED THE PROPOSED VARIATIONS. THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION. HENCE, CIT (A) CONFIRMS THE REASONING GIVEN IN THE PAGE | 9 EARLIER YEARS ASSESSMENT ORDER AND DRP IS FOLLOWED IN THE CURRENT YEAR. 6. BASED ON THE ABOVE FI NDINGS, THE LD. ASSESSING OFFICER DETERMINED THE ROYALTY INCOME CHARGEABLE TO TAX IN INDIA: - A. ON HANDSET BASED ON AMOUNT PAID BY INDIAN CARRIERS OEMS OF RS. 6 1860 3768/ AT THE RATE OF ASSUMED RATE OF ROYALTY @ 5% COMPUTING THE TAXABLE ROYALTY INCOME IN INDIA OF RS. 3 093 0188/ AND LEVIED THE TAX AT THE RATE OF 15% AS PER ARTICLE 12 OF INDO US DTAA AMOUNTING TO RS. 4639528/ B. ON INFRASTRUCTURE EQUIPMENT AFTER OBTAINING INFORMATION UNDER SECTION 13 3 (6) ACT FROM T ATA TELECOM SERVICES AND M/S RELIANCE COMMUNICATIONS LTD ABOUT EXPENSES INCURRED BY THEM TOWARDS PROCUREMENT OF CDMA INFRASTRUCTURE AND NETWORK EQUIPMENT FOR SETTING UP OR EXPANSION OF CDMA NETWORK. ACCORDING TO THE INFORMATION RECEIVED FROM RELIANCE COMM UNICATIONS LTD THAT IT PAID FOR PURCHASE OF CDMA INFRASTRUCTURE NETWORK EQUIPMENT OF RS. 37512459/ AND FOR PURCHASE OF CDMA HANDSETS OF RS. 309301884/ . HOWEVER BASED ON THE DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL FOR ASSESSMENT YEAR 2008 09 AND FURNISHING OF THE AFFIDAVIT AS IT WAS FURNISHED THAT PACE TELECOMMUNICATIONS PRIVATE LIMITED IS NOT LICENSEE OF QUALCOMM THE AMOUNT OF RS. 5 3868000/ WAS NOT CONSIDERED FOR CALCULATING THE ROYALTY INCOME OF THE ASSESSEE. ON THE BALANCE SUM OF RS. 37512459 / THE LD. ASSESSING OFFICER ASSUMED THE RATE OF ROYALTY @ 5% AND HELD THAT SAME IS TAXABLE IN INDIA AS PER THE INCOME TAX ACT AND FURTHER APPLIED TAX AT THE RATE OF 15% AS PER ARTICLE 12 OF DTAA. C. ON RECEIPT OF INFORMATION FROM TATA TELE SERVICES LTD, THAT IT HAS PAID A SUM OF RS. 8121093810/ TO VARIOUS SUPPLIERS. HOWEVER IT WAS NOTED THAT RS. 3045237894 / - IS NOT PAID AS THEY WERE NOT LICENSEE OF QUALCOMM IN RELATION TO CDMA INFRASTRUCTURE EQUIPMENTS. HOWEVER WITH RESPECT TO THE REMAINING SUM OF RS. 507585 5916/ IS THE ROYALTY WAS CONSIDERED AT 5% OF THE ABOVE SUM AS PER THE ASSESSMENT IN EARLIER YEARS. PAGE | 10 D. THEREFORE ACCORDINGLY THE LD. ASSESSING OFFICER COMPUTED THE AMOUNT PAID BY RELIANCE TO OEMS OF QUALCOMM OF RS. 37512459/ AND AMOUNT PAID BY TATA TELE SER VICES LTD TO OEMS OF QUALCOMM OF RS. 5075855916/ THE LD. AO ASSUMED RATE OF ROYALTY @ 5% AND HELD THAT ROYALTY IS TAXABLE IN INDIA ON CDMA EQUIPMENT OF RS. 255668419/ . THE LD. AO FURTHER TAXED IT AT THE RATE OF 15% AS PER THE ARTICLE 12 OF THE DOUBLE TAX ATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA AMOUNTING TO RS. 38350263/ . E. THE ROYALTY FROM BREW OPERAT OR AGREEMENT AMOUNTING TO RS. 6 7848685/ WAS ALSO CONSIDERED AND 15% THEREOF AMOUNTING TO RS. 1 017 7303/ WAS CONSIDERED AS ROYALTY FROM BREW OPERATOR AGREEMENTS. F. ACCORDINGLY, THE LD. ASSESSING OFFICER FRAMED DRAFT ASSESSMENT ORDER, WHICH WAS RECEIVED BY ASSESSEE ON 27/12/2011. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE LD. DISPUTE RESOLUTION PANEL ON 25/1/2012 WHICH WERE DISPOSED OF ON 12/7/2012 UNDER SECTION 144C (5) OF THE INCOME TAX ACT . THE ASSESSEE RAISED FOR OBJECTIONS BEFORE THE LD. DISPUTE RESOLUTION PANEL, WHICH WERE REJECTED RELYING ON THE DIRECTION FOR ASSESSMENT YEAR 2008 09 WHEREIN ON IDENTICAL FACTS AND CIRCUMSTANCES THE SAME WERE REJEC TED. G. CONSEQUENTLY THE LD. ASSESSING OFFICER PASSED ASSESSMENT ORDER UNDER SECTION 143 (3 ) READ WITH SECTION 144C (13) OF THE ACT ON 30/8/2012 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AS UNDER: - SR NO INCOME TAXABLE AS PER THE RATES SPECIFIED AS PER ARTICLE 12 OF THE INDO USA DOUBLE TAXATION AVOIDANCE AGREEMENT QUALIFYING AMOUNT AMOUNT OF ROYALTY AT THE RATE OF 15% 1 ROYALTY ON CDMA HANDSETS 3093 0188/ - 463 9528 / - 2 ROYALTY ON INFRASTRUCTURE EQUIPMENT 255668419/ - 3835 0263 / - 3 ROYALTY FROM BREW OPERATOR AGREEMENT 6784 8685 / - 1017 7303 / - TOTAL 35,44,47,292 5,31,67,094 PAGE | 11 ARGUMENTS OF THE ASSESSEE 7. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THERE ARE 2 ISSUES INVOLVED IN THIS BUNCH OF APPEALS AS UNDER: - A. WHETHER ROYALTY INCOME IS CHARGEABLE TO TAX IN INDIA OF THE ASSESSEE ACCORDING T O PROVISIONS OF SECTION 9 (1) (VI ) OF THE INCOME TAX ACT AND ARTICLE 12 (7) (B) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA OF AN ENTITY BASED IN USA WHO HAS PROVIDED RIGHT TO USE TECHNOLOGIES TO NON - RESIDENT ORIGINAL EQUIPMENT MANUFACTURERS WHO HAVE IN TERMS SOLD THE MOBILE HANDSETS USING THAT TECHNOLOGY TO THE INDIAN TELECOM OPERATORS? B. WHETHER CERTAIN REVENUE RECEIVED BY ASSESSEE FROM INDIAN ENTITY FOR USE OF THE TECHNOLOGY IS CHARGEABLE TO TAX IN INDIA? 8. HE FURTHER SUBMITTED THAT PAST ASSESSMENT HISTORY OF THE ASSESSEE BOTH THIS ISSUE TRAVELLED UP TO THE TRIBUNAL AND A. FOR ASSESSMENT YEAR 2000 01 TO 2004 05, THE COORDINATE BENCH HAS DECIDED BOTH THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE. (HEREINAFTER REFERRED TO AS FIRST ORDER) B. FOR ASSESSMENT YEAR 2005 - 06 TO ASSESSMENT YEAR 2008 09 BASED ON THE ADDITIONAL EVIDENCES SUBMITTED BY THE REVENUE, THE COORDINATE BENCH REMITTED THE MATTER BACK TO THE LD. ASSESSING OFFICER. (HEREINAFTER REFERRE D TO AS SECOND ORDER) HE THEREFORE SUBMITTED THAT THE ONLY DIFFERENCE BETWEEN THE ABOVE TWO ORDERS OF THE COORDINATE BENCH ON THE SAME SET OF FACTS IS THAT IN THE LATER DECISION FOR ASSESSMENT YEAR 2005 06 TO ASSESSMENT YEAR 2008 09 THE REVENUE FILED ADD ITIONAL EVIDENCES IN THE FORM OF INCOME TAX RETURNS OF THE ORIGINAL EQUIPMENT MANUFACTURERS IN INDIA. HE SUBMITTED THAT FOR THESE YEARS IN APPEAL BEFORE THE COORDINATE BENCH NOW I.E. ASSESSMENT YEAR 2009 10 TO ASSESSMENT YEAR 2012 13 , NO SUCH ADDITIONAL EV IDENCES HAVE BEEN FILED BY REVENUE . THEREFORE , THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2000 - 01 TO ASSESSMENT YEAR 2004 - 05. HE ALSO EXTENSIVELY READ BOTH THE ORDERS OF THE COORDINATE B ENCH TO DRAW THE DISTINCTION BETWEEN BOTH OF THEM AND SUBMITTED PAGE | 12 THAT IN ABSENCE OF ADDITIONAL EVIDENCES FILED BY THE REVENUE OF FILING RETURN OF THOSE ORIGINAL EQUIPMENT MANUFACTURERS WITH RESPECT TO THE CDMA TECHNOLOGY INCOME IN INDIA FOR THE IMPUGNED REL EVANT YEARS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE COORDINATE BENCH WHICH BINDS THE COORDINATE BENCH FOR DECIDING THESE APPEALS. 9. HE REFERRED THE PROVISIONS OF SECTION 9(1 ) ( VI ) ( C ) OF THE ACT AND SUBMITTED THAT INCOME BY WAY OF ROYALTY PAYABLE BY A PERSON WHO IS A NON - RESIDENT IS CHARGEABLE TO TAX UNDER THAT SECTION IF (1) IT IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF BUSINESS CARRIED ON BY SUCH PERSON IN IND IA OR (2) FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. HE SUBMITTED THAT REVENUE NEEDS TO SHOW THAT PATENTS OF THE ASSESSEE WERE USED BY ORIGINAL EQUIPMENT MANUFACTURERS FOR CARRYING ON ANY BUSINESS IN INDIA. HE SUBMITTED THAT THESE PATENTS ARE USED BY ORIGINAL EQUIPMENT MANUFACTURERS IN MANUFACTURING OF HANDSET OR EQUIPMENTS OUTSIDE INDIA. HE FURTHER STATED THAT NONE OF THE ORIGINAL EQUIPMENT MANUFACTURERS HAVE MANUFACTURED HANDSETS IN INDIA. 10. HE REFERRED TO THE ORDER OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2000 - 01 TO 2004 - 05 DATED 31/1/2013 SPECIFICALLY AT PAGE NO. 114 (PARA NO. 12 7 TO 129) FOR THIS PROPOSITION. HE SUBMITTED THAT THE BURDEN IS ON THE REVENUE TO PROVE THAT OEMS ARE CARRYING ON BUSINESS IN INDIA AND THAT THEY HAVE USED ASSESSEES PATENTS FOR THE PURPOSES OF SUCH BUSINESS IN INDIA OR THAT THEY HAVE USED QUALCOMMS PATENTS FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM A SOURCE IN INDIA. 11. HE FURTHER SUBMITTED THAT THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THERE ARE NO ADDITIONAL EVIDENCES SUBMITTED IN THE IMPUGNED APPEAL S FOR ASSESSMENT YEAR 2009 10 TO ASSESSMENT YEAR 2012 13. HE EXTENSIVELY REFERRED PARA NO. 131, 139, 156, AND 167 OF THE ORDE R. 12. HE FURTHER SUBMITTED THAT REVENUE PREFERRED MISCELLANEOUS APPLICATION IN M A NO. 147/ DEL /2013 FOR THE ABOVE ASSESSMENT YEARS IN THE ORDER OF THE PAGE | 13 COORDINATE BENCH. HE SUBMITTED THAT REVENUE CHALLENGED THE FINDING OF THE COORDINATE BENCH THAT OEMS ARE NOT DOING ANY BUSINESS IN INDIA. IN THAT MISCELLANEOUS APPLICATION, IT WAS STATED THAT THE TAXABILITY OF THE OEM IS NOT DETERMINATIVE OF THE FACTS WHETHER THEY ARE DOING BUSINESS IN INDIA AND SECONDLY THE PROCEEDINGS AGAINST SEVERAL OEMS TO TAX THEIR INCOME AR E PENDING WITH VARIOUS TAX AUTHORITIES . THEREFORE , IT WAS NOT CORRECT TO SAY FOR THE COORDINATE BENCH THAT OEMS ARE NOT BEING ASSESSED TO TAX IN INDIA. THE REVENUE ALSO CHALLENGED THAT THE COORDINATE BENCH IN HOLDING THAT NO TITLE TO THE GOODS PASSED IN IN DIA AND NO FURTHER ACTIVITY WAS DONE BY THE OEMS IN INDIA AFTER THE SALE. WITH RESPECT TO PARA NO. 142 OF THE ORDER , REVENUE SUBMITTED THAT THE INSTALLATION IN INDIA IS OF THE EQUIPMENT OF THE CDMA TECHNOLOGY LICENSED BY QUALCOMM AND IT WOULD BE TOTALLY ER RONEOUS TO SPLIT THE ACTIVITY OF INSTALLATION AS BEING BEREFT OF QUALCOMMS TECHNOLOGY AND THE SUPPLY OF EQUIPMENT BEING WITH SUCH TECHNOLOGY. THE REVENUE ARGUED THAT THE INSTALLATION ACTIVITIES ARE INTEGRAL TO THE SUPPLY AND ANY SUCH SEGREGATION IS HIGHLY ERRONEOUS. VIDE PARA NO. 10 OF THE ORDER OF THE COORDINATE BENCH DISMISSING THE MISCELLANEOUS APPLICATION OF THE REVENUE HAS HELD THAT THE REVENUE FAILED TO FILE ANY EVIDENCE IN SUPPORT OF ITS CONTENTIONS THAT THE OEMS WERE BROUGHT TO TAX IN INDIA ON THE INCOME, WHICH IS THE SUBJECT MATTER IN THESE APPEALS. ON THE OTHER ISSUES, THE COORDINATE BENCH DISMISSED THE MISCELLANEOUS APPLICATION OF THE ASSESSEE HOLDING THAT THESE ARE NOT MISTAKES APPARENT FROM THE RECORD. THEREFORE , HIS SUBMISSION WAS THAT THAT UNLESS REVENUE BRINGS ON THE MATERIAL THAT OEMS WERE CARRYING ON BUSINESS IN INDIA SOURCE OF SUCH INCOME IN INDIA, THE IMPUGNED INCOME DOES NOT FALL IN THE DEFINI TION OF ROYALTY UNDER SECTION 9 (1) (VI) (C) OF THE INCOME TAX ACT . 13. HE F URTHER REFERRED TO THE DECISION OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2005 - 06 TO 2008 - 09 DATED 20/2/2015 IN CASE OF THE ASSESSEE AND REFERRED PARAGRAPH NO. 31 . HE SUBMITTED THAT ONCE THE LOCK OF THE TELEPHONE IS BROKEN IT COULD BE USED ON ANY OTHER N ETWORK. HE SUBMITTED THAT THE CDMA HANDSET, IF BREAK OPENED THEN IT IS NOT SPECIFIC TO THE SERVICE PROVIDER. HE FURTHER REFERRED TO PARA NO. 38 OF THE ORDER AND SUBMITTED THAT THE ITAT AGREED WITH THE EARLIER ORDER THAT AS LONG AS PAGE | 14 THE PATENTS ARE USED IN T HE MANUFACTURING PROCESS WHICH IS TAKEN PLACE OUTSIDE INDIA SUCH A ROYALTY CANNOT HAVE ANY TAX IMPLICATIONS IN INDIA. HE FURTHER REFERRED TO PARA NO. 68 OF THE ORDER WHEREIN IN THAT PARTICULAR YEAR THE REVENUE FILED A LIST OF OEMS WHO ARE ASSESSED TO TAX I N INDIA AND ALSO THE DETAILS ABOUT THE ASSESSING OFFICER HAVING JURISDICTION TO ASSESS THEIR INCOME IN INDIA. HE SUBMITTED THAT SUCH AN ASSERTION IS MISSING IN THE IMPUGNED APPEALS. HE FURTHER REFERRED PARA NO. 69 OF THAT ORDER WHERE THE ASSESSMENT ORDER I N CASE OF ONE OF THE OEMS WAS ALSO FURNISHED WHICH INDICATED THAT ONLY THAT THEY HAD A PRESENCE IN INDIA AND THAT SAID ENTITY WAS MAKING SALES THROUGH ITS PERMANENT ESTABLISHMENT IN INDIA TO DIFFERENT CUSTOMERS BASED IN INDIA. HE REFERRED TO PARA NO. 71 OF THE ORDER NOTED THAT THERE IS A MAJOR CHANGE IN THE FACTS OF THE CASE BEFORE THE ITAT COMPARED TO THE EARLIER YEAR. IT WAS SPECIFICALLY MENTIONED THAT , WHILE THERE WAS NOTHING TO SUGGEST THAT THE OEMS WERE SUBJECTED TO TAX IN INDIA IN RESPECT OF THEIR BUS INESS INCOME AND THIS WAS ONE OF THE FACTORS LEADING TO THE CONCLUSION THAT THE OEMS WERE NOT CARRYING ON ANY BUSINESS , WHERE IN THE LATER YEARS THERE WAS REASONABLE EVIDENCE TO SUGGEST THAT OEMS WHO HAVE PAID ROYALTY TO THE ASSESSEE WERE CARRYING ON BUSIN ESS IN INDIA LEADING TO THE TAXABILITY IN INDIA. HE SUBMITTED THAT NO SUCH FACTS HAVE BEEN BROUGHT ON RECORD FOR THE IMPUGNED YEARS IN THIS APPEAL. HE THEREFORE SUBMITTED THAT THE FACTS OF THE CASE IN THE IMPUGNED APPEAL ARE NEARER TO THE FACTS DECIDED BY THE COORDINATE BENCH IN ASSESSMENT YEAR 2000 - 01 TO 2004 - 2005. HE THEREFORE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AS PER ORDER DATED 31/01/2013 AND FACTS STATED IN ORDER DATED 28/02/2015 BEING ABSENT IN THESE YEARS IS NOT AP PLICABLE. ARGUMENTS OF THE REVENUE 14. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITTED THAT EVEN IF THERE ARE NO ADDITIONAL EVIDENCES FILED BY THE REVENUE IT IS AN ESTABLISHED FACT THAT ALL OEMS ARE ASSESSED TO TAX IN INDIA ON THEIR INCOME. HE REFERRED TO ARTICLE 12 OF THE INDO US DTAA TO SUBMIT THAT IN THAT ARTICLE THE WORD ONLY IS MISSING. HE THEREFORE SUBMITTED THAT THE PART OF THE ROYALT Y INCOME SHOULD HAVE THE RIGHT OF TAXATION WITH THE SOURCE COUNTRY. PAGE | 15 HE THEREFORE SUBMITTED THAT ACCORDING TO DTAA SOURCE COUNTRY HAS ALSO THE RIGHT OF TAXING THE ROYALTIES OF SOME PART. 15. HE FURTHER REFERRED TO THE PARA NO. 137 OF THE ORDER OF THE COO RDINATE BENCH FOR ASSESSMENT YEAR 2000 - 01 TO 2004 - 05 AND SUBMITTED THAT IN THAT PARTICULAR CASE THE ISSUE WAS DECIDED HOLDING THAT BUSINESS OF OEM AND PROFIT ON IT IS ON OUTSIDE INDIA , MANUFACTURING IS ALSO OUTSIDE INDIA, AND IP RIGHTS ARE UTILIZED OUTSIDE INDIA. HE SUBMITTED THAT THE IP RIGHTS ARE EXPLOITED IN INDIA WAS NOT CONSIDERED. 16. HE FURTHER REFERRED TO PARA NO. 36 OF THE SECOND ORDER TO SUBMIT THAT CDMA HANDSETS BEING INDIAN CARRIER SPECIFIC CANNOT BE AN EXCUSE ENOUGH FOR TAXABILITY OF PROFITS AND MA NUFACTURING OF THESE HANDSETS . THE PROFIT SO EARNED BY THE OEM HAS TO BE ESSENTIALLY TAXED IN THE TAX JURISDICTION WHERE THE MANUFACTURING ACTIVITIES ARE CARRIED . HOWEVER , REVENUE IS NOT CONCERNED WITH THE TAXABILITY OF THOSE PROFITS EITHER. HE FURTHER REFERRED TO PARA NO. 37 OF THE ORDER WHERE THE COORDINATE BENCH HAS SPECIFICALLY STATED THAT OEMS WERE CARRYING ON BUSINESS IN INDIA THROUGH THEIR PERMANENT ESTABLISHMENTS WHICH ARE DE FACTO PROJECT IONS OF THE OEMS IN INDIA AND THE CDMA HANDSETS BEING SERVICE PROVIDER SPECIFIC ASSUMES SIGNIFICANCE. HE FURTHER STATED THAT THE COORDINATE BENCH IN THAT PARTICULAR CASE HELD THAT WHEN THE PRODUCT I S INDIA SPECIFIC AND THE BUSINESS OF THE OEM PRODUCING THA T PRODUCT IS CARRIED ON THROUGH ITS PERMANENT ESTABLISHMENT IN INDIA, THE NATURAL COROLLARY OF THIS POSITION IS THAT OEMS CAN BE HELD TO BE CARRYING ON BUSINESS IN INDIA PARTLY, IF NOT , WHOL LY . HE FURTHER REFERRED TO PARA NO. 39 OF THE ORDER AND SUBMITTE D THAT THE MOOT ISSUE IS THE TAXATION OF ROYALTY IN RESPECT OF USE OF PATENTS IN HANDSETS, WHICH ARE SOLD IN INDIA. HE FURTHER STATED THAT ROYALTY, WHICH HAS BEEN PAID BY THE OEM OF CDMA HANDSETS, IS NOT ONLY ROYALTY FOR PATENTS USED IN THE MANUFACTURING PROCESS BUT PREDOMINANTLY FOR THE USE OF THE HANDSETS MANUFACTURED AND ON WHICH THE ROYALTIES CHARGED ON EACH HANDSETS, SOLD OR USED IN INDIA. HE THEREFORE SUBMITTED THAT THE ROYALTY IS CORRECTLY CHARGED TO TAX. 17. HE FURTHER REFERRED THAT THE EARLIER ORDE R OF THE COORDINATE BENCH WAS ONLY ON INABILITY OF REVENUE TO SHOW TAXABILITY OF OEM IN INDIA AND IN PAGE | 16 SUBSEQUENT ORDER OF THE ITAT, THERE WAS A REFERENCE OF OEM TAXED IN INDIA. THEREFORE, ACCORDING TO HIM BUSINESS CONNECTION AND PERMANENT ESTABLISHMENT IS A UTOMATIC. HE FURTHER REFERRED THAT IN ASSESSMENT ORDER THE CORRECT FINDING IS GIVEN THAT THE OEMS ARE HAVING PRESENCE IN INDIA AND OEMS HAVING SOME OF THE INCOME CHARGEABLE TO TAX IN INDIA. THE LD. ASSESSING OFFICER HAS RECORDED A FACT THAT OEMS HAVE BUSIN ESS PRESENCE IN INDIA. HE FURTHER REFERRED TO PARA NO . 72 OF THE 2 ND ORDER OF THE COORDINATE BENCH AND SUBMITTED THAT IN THE CONTEMPORARY GLOBAL SCENARIO, THE PLACE OF BUSINESS OF AN ENTITY IS NOT MERELY THE PLACE OF MANUFACTURING THE PRODUCTS BUT EVEN A PLACE WHERE THE ENTITY HAS A PERMANENT ESTABLISHMENT , WHERE THE ASSES SEE IS CARRYING ON ITS BUSINESS INASMUCH AS THE VERY DEFINITION OF THE PERMANENT ESTABLISHMENT UNDER THE BASIC RULE OF PERMANENT ESTABLISHMENT. HE SUBMITTED THAT WHEN AN ENTITY ACCEPTS THE TAXABILITY BY THE VIRTUE OF HAVING PERMANENT ESTABLISHMENT , NORMALL Y IT COULD NOT BE SAID THAT ASSESSEE IS NOT CARRYING ON BUSINESS IN THAT TAX JURISDICTION. HE THEREFORE SUBMITTED THAT WHEN THE OEMS HAVE A PERMANENT ESTABLISHMENT IN INDIA THEN THEY ARE CARRYING ON BUSINESS IN INDIA. HE FURTHER REFERRED TO PARA NO. 76 OF THE SECOND ORDER AND SUBMITTED THAT WHEN OEM HAS A PERMANENT ESTABLISHMENT IN INDIA IT COULD NOT BE OPEN TO THEM TO SAY THAT THEY ARE NOT CARRYING ON ANY BUSINESS IN INDIA. HE THEREFORE SUBMITTED THAT THE ALL OEMS ARE CARRYING ON BUSINESS IN INDIA AND THER EFORE THE LD. AO HAS CORRECTLY CHARGED THE ROYALTY AS SOURCE OF SUCH INCOME IS ALSO IN INDIA. 18. WITH RESPECT TO THE FURNISHING, ANY ADDITIONAL EVIDENCE, HE SUBMITTED THAT ADDITIONAL EVIDENCES ARE NOT REQUIRED, AS AO HAS ALREADY STATED THAT THE OEMS HAVE A PERMANENT ESTABLISHMENT IN INDIA. HE SUBMITTED THAT ADDITIONAL EVIDENCES WERE SUBMITTED IN THE SECOND ORDER ONLY TO SHOW THAT OEM HAVE PERMANENT ESTABLISHMENT IN INDIA. HE ALSO SUBMITTED A COMPARATIVE INDEX OF BOTH THE ORDERS OF THE COORDINATE BENCH TO S HOW THAT THE DECISION GIVEN BY THE SECOND ORDER OF THE ITAT SHOULD BE APPLIED TO THE PRESENT APPEALS. HE FURTHER SUBMITTED THAT THE COORDINATE BENCH MUST FOLLOW THE SUBSEQUENT DECISIONS . PAGE | 17 19. HE FURTHER REFERRED TO THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT SYED ASIFUDDIN AND ORS. VS THE STATE OF ANDHRA PRADESH AND ... ON 29 JULY 2005 EQUIVALENT CITATIONS: 2006 (1) ALD CRI 96, 2005 CRILJ 431, AND RELIED HEAVILY ON THE PARA NO. 24 OF THE DECISION AND SUBMITTED THAT HANDSETS USED IN INDIA HAS A COPYRIGHT AND CDMA PHONES ARE COUNTRY SPECIFIC. HE STATED THAT PATENTS ARE NOT INDIA SPECIFIC BUT UNIVERSAL BUT PATENTS ARE USED FOR MANUFACTURING OF PRODUCTS WHICH ARE INDIA SPECIFIC. 20. ON THE ISSUE OF PORTABILITY , HE REFERRED TO THE PAP ER BOOK FOR ASSESSMENT YEAR 12 13 FILED BY THE ASSESSEE AT PAGE NO. 198 AND SUBMITTED THAT ONLY NETWORK PARAMETERS ARE TO BE PUT SO IT IS NETWORK PROVIDER SPECIFIC AND EVERYTHING IS RESIDING IN HANDSET AND NOT IN CHIP OR SIM . THEREFORE , IT IS A ROYALTY A TTRIBUTABLE TO HANDSET. 21. HE FURTHER REFERRED TO PARA NO. 49 OF THE 2 ND ORDER OF THE ITAT IN SUBMITTED THAT SECTION 9 DEALS WITH THE INCOMES WHICH ARE DEEMED TO ACCRUE OR ARISE IN INDIA AND CLEARLY THEREFORE AN INCOME IN ORDER TO BE TAXED IN INDIA UNDER SECT ION 9 NEED NOT ACCRUE OR ARISE IN INDIA. HE FURTHER REFERRED TO PARA NO. 52 OF THAT DECISION AND SUBMITTED THAT THE CLEAR EMPHASIS ON TAXATION BASED ON USAGE IN BUSINESS RATHER THAN BASED ON RESIDENCE OF THE PAYER FOR TAXATION OF ROYALTIES. THEREFORE HE SUBMITTED THAT PROVISIONS OF SECTION 9 (1) (VI)(C) IS ALSO EXTENDED TO THE ROYALTY PAID BY THE NON - RESIDENT AS LONG AS IT WAS RELATABLE TO A BUSINESS CARRIED ON IN INDIA OR TO ANY SOURCE IN IND IA. HE THEREFORE SUBMITTED THAT THE OEMS ARE CARRYING ON BUSINESS IN INDIA AND THE SOURCE OF INCOME IS IN INDIA. 22. HE FURTHER REFERRED TO PARA NO. 65 OF THAT DECISION AND SUBMITTED THAT WHEREIN AN INCOME IS PARTLY CARRIED OUT IN INDIA BUT THE ROYALTIES ARE P AYABLE IN RESPECT OF SUCH PART OF THE BUSINESS AS IS CARRIED OUT IN INDIA , IT WOULD BE TAXABLE IN INDIA. 23. HE FURTHER REFERRED TO PARA NO. 177 OF THE FIRST ORDER OF THE COORDINATE BENCH AND SUBMITTED THAT THE FINDINGS OF THE COORDINATE BENCH ARE NOT IN ACCOR DANCE WITH THE ORDER OF THE HONBLE ANDHRA PRADESH HIGH COURT IN ASAFUDINS CASE (SUPRA) . PAGE | 18 24. IN THE END, HIS MAIN CONTENTIONS WERE REITERATED THAT ROYALTY IS PAID BY NON - RESIDENT OEMS IN RESPECT OF PATENTS USED FOR THE PURPOSE OF BUSINESS IN INDIA OF THOSE OEMS. HE FURTHER SUBMITTED THAT SUCH ROYALTY IS ALSO PAID FOR THE BUSINESS OF OEMS IN INDIA WHOSE SOURCE IS INDIAN CARRIERS, WHICH IS IN INDIA. HE EXTENSIVELY RELIED ON THE SECOND ORDER OF ITAT AND SUBMITTED THAT ISSUE NEEDS TO BE SET ASIDE IDENTICALLY FOR DETERMINING ISSUE AND CORRECT FACTS OF TAXATION OF ROYALTY IN THE HANDS OF THE ASSESSEE. REJOINDER OF THE ASSESSEE 25. IN REJOINDER THE LD. AUTHORIZED REPRESENTATIVE VEHEM ENTLY SUBMITTED THAT THE REVENUE HAS TO COME OUT AND CLEARLY ESTABLISH THAT ROYALTY IS CHARGEABLE TO TAX UNDER SECTION 9(1) (VI)(C) UNDER THE INDIAN INCOME TAX ACT AS WELL AS UNDER ARTICLE 12(7)( B ) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT . HE FURTHER SUBMITTED THAT AGREEMENTS ARE ENTERED INTO OUTSIDE INDIA, MANUFACTURING WAS ALSO OUTSIDE INDIA IP ARE USED ARE ALSO RESIDING OUTSIDE INDIA , IPRS AND THEREFORE THERE IS NO DEEMED ACCRUAL OF THE ROYALTY INCOME IN INDIA. HE FURTHER VEHEMENTLY SUBMITTED THAT W HAT THE OEMS HAVE SOLD IN INDIA IS A ' PRODUCT AND NOT A PATENT . HE FURTHER SUBMITTED THAT CUSTOMER DOES NOT USE THE PATENT BUT THE PRODUCT THAT IS A HANDSET. HE FURTHER STATED THAT THE QUANTIFICATION OF THE ROYALTIES ONLY FOR THE CONTROL PURPOSES AS THE AGREEMENTS ARE BASED ON SALE PRICE AND THEREFORE MERELY BECAUSE THE ROYALTY IS PAID BY THE OEMS TO THE ASSESSEE BASED ON HANDSET SOLD IN INDIA DOES NOT HAVE ANY BEARING ON TAXABILITY OF SUCH ROYALTY IN INDIA. HE FURTHER SUBMITTED THAT IT IS THE AGREEM ENT WORLDWIDE. 26. HE FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR 2008 - 09 THERE IS NO EVIDENCES THAT THE OEMS HAVE BUSINESS CONNECTION OR PERMANENT ESTABLISHMENT IN INDIA AND ONLY IN ASSESSMENT YEAR 2013 - 14 THERE IS SOME REFERENCE OF THE BUSINESS OF THE OEM S THAT TOO NOT FOR CDMA BUT FOR GSM . HE THEREFORE SUBMITTED THAT THE STATEMENT OF THE REVENUE IS NOT CORRECT, AS THERE IS NO ASSESSMENT OF THE OEMS FOR ASSESSMENT YEAR 2009 - 10 ARE LATER YEARS OF CDMA . 27. EVEN OTHERWISE , HE STATED THAT PERMANENT ESTABLISHMENT OF THE OEM ARE WITH RESPECT TO GSM AND THERE IS NO REFERENCE TO THE CDMA AND THEREFORE PAGE | 19 THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE REVENUE THAT THERE IS ANY PERMANENT ESTABLISHMENT OF THE OEMS WITH RESPECT TO THE S ALE OF CDMA HANDSET IN INDIA. HE THEREFORE SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE FIRST ORDER OF THE COORDINATE BENCH. 28. HE ALSO STATED THAT THERE IS A DISTINCTION BETWEEN CARRYING ON BUSINESS IN INDIA AND CARRYING ON BUSINES S WITH INDIA . HE SUBMITTED IN THE SECOND ORDER OF THE COORDINATE BENCH THIS DISTINCTION WAS NOT TAKEN CARE OF. HE SUBMITTED THAT THE SECOND LIMB OF THE PROVISIONS OF SECTION 9(1)(VI) (C) WHEREIN THE ROYALTY HAS TO BE FOR THE PURPOSE OF MAKING OR EARNING A NY INCOME FROM ANY SOURCE IN INDIA . HE SUBMITTED THAT THE INFORMATION GATHERED BY THE REVENUE IS ONLY WITH THE GSM PHONES AND NOT WITH RESPECT TO CDMA HANDSETS. 29. HE FURTHER REFERRED TO PARA NO. 76 OF THE SECOND ORDER AND SUBMITTED THAT THAT THERE IS NO EVI DENCE THAT THAT ROYALTY IS BEING USED IN THE BUSINESS OF CDMA TECHNOLOGY WHEREAS IN THE FIRST ORDER IT IS CATEGORICALLY HELD THAT IT IS NOT. HE FURTHER STATED THAT OEMS WERE NOT CARRYING ON ANY BUSINESS IN INDIA WITH RESPECT TO THE CDMA TECHNOLOGY EXCEPT THE SALE OF THE HANDSETS FROM THE OTHER JURISDICTION. 30. HE FURTHER SUBMITTED THAT THE ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT ADDITIONAL EVIDENCES ARE NOT REQUIRED IS NOT CORRECT . HE SUBMITTED THAT IF THE REVENUE WANTS TO TAX THE ROYALTY IN INDIA IT HAS TO PLACE THE ADDITIONAL EVIDENCES AS IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 8 AND 2008 9 IN THE 2 ND ORDER OF THE TRIBUNAL. HE FURTHER SUBMITTED THAT ONUS IS ON THE REVENUE TO PROVE BOTH THE LIMBS OF SECTION 9(1)(VI)(C) OF THE ACT. IT HAS TO SHOW THAT OEMS IN INDIA CARRY ON BUSINESS OR PROFESSION AND SUCH PATENTS ARE USED OR UTLISED IN INDIA. REVENUE HAS ALSO TO SHOW THAT SOURCE OF INCOME OF OEMS IS IN INDIA. MERELY, SALES IN INDIA DOES NOT BECOME SOURCE IN INDIA . 31. HE FU RTHER REFERRED TO PARA NO. 142 (C) OF THE 1 ST ORDER WHEREIN THE ARGUMENT OF THE REVENUE THAT THE PATENTED TECHNOLOGIES USED BY THE OEMS TO MANUFACTURE INDIA SPECIFIC PRODUCTS AND THAT THE HANDSETS ARE CUSTOMIZED AND PROGRAMMED TO INCLUDE TO A SPECIFIC OP ERATOR AND COORDINATE BENCH HAS HELD THAT THE PATENTS IN QUESTION ON WHICH PAGE | 20 ROYALTIES SOUGHT TO BE TAXED HAS NOTHING TO DO WITH THE FUNCTIONALITY OF THE HANDSET. IT HAS BEEN HELD THAT FUNCTIONALITY OF THE HANDSETS CAN BE CUSTOMER SPECIFIC, OPERATOR SPECIF IC, OR INDIA SPECIFIC BUT TECHNOLOGY WITH RESPECT TO CDMA CONNECTIVITY IS UNIVERSAL TECHNOLOGY AND IS NOT CUSTOMER SPECIFIC. HE FURTHER SUBMITTED THAT THE ROYALTY IS PAID FOR MANUFACTURE OF PRODUCTS AND IT CANNOT BE RELATED WITH ANYTHING ELSE. HE FURTHER R EFERRED TO PAGE NO. 197 OF THE PAPER BOOK FOR ASSESSMENT YEAR 2012 - 13 WHEREIN THE RELIANCE COMMUNICATION LTD HAS SUBMITTED THAT THE NETWORK EQUIPMENT HANDSET RUNNING ON CDMA IS A STANDARD PRODUCT BASED ON ITU/3 RD GENERATION PARTNERSHIP PROJECT 2 STDS. . IT WAS FURTHER SUBMITTED THAT IN THAT THERE IS NO INDIA SPECIFIC BASIC TECHNICAL FEATURE TO THE BEST OF THE KNOWLEDGE OF THAT PARTICULAR PARTY. THERE WILL BE INDIA SPECIFIC CUSTOMER FUNCTIONALITY SUCH AS HINDI FON TS, CUSTOMIZATION FOR RINGTONES , ETC WHICH IS REQUIRED BY OPERATOR TO PROMOTE THEIR BRAND IN THE DEVICES. THE EQUIPMENT MAY ALSO HAVE ADDED FUNCTIONALITY TO MEET THE SPECIFIC REGULATORY REQUIREMENTS SUCH AS FACILITY FOR LEGAL INTERCEPTION ETC . IT WAS FURTH ER SUBMITTED THAT THE CDMA NETWORK EQUIPMENT HANDSET OPERATI NG IN INDIA IS A STANDARD PRODUCT . THEY SHOULD BE ABLE TO FUNCTION IN OTHER COUNTRIES ALSO AND WOULD REQUIRE LOADING OF THE OPERATOR SPECIFIC NETWORK PARAMETERS ONLY. HE THEREFORE SUBMITTED THAT THE PRODUCT IS NOT INDIA SPECIFIC BUT IS A STANDARD PRODUCT . 32. HE FURTHER SUBMITTED THAT ACCORDING TO THE PROVISIONS OF SECTION 9(1)(VI) (C) THE ROYALTY SHOULD HAVE BEEN PAID FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. HE SUBMITTED THAT SOURCE IS NOT IN INDIA . HE FURTHER REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. HAVELLS INDIA LTD 352 ITR 376, REFERRED TO PARA NO. 13 OF THAT DECISION, AND SUBMITTED THAT MERELY BECAUSE THE OEMS ARE MAKING SALES IN INDIA , IT CANNOT BE HELD THAT SOURCE OF THE INCOME IS ALSO IN INDIA. ACCORDING TO THAT HE SUBMITTED THAT SOURCE OF INCOME OF THE OEM IS NOT IN INDIA AND HENCE THE INCOME EARNED BY THE ASSESSEE FROM THOSE OEMS IS NOT CHARGEABLE TO TAX IN INDIA UNDER SECTION 9(1)( VI)(C) OF THE ACT . PAGE | 21 33. IN THE END, HE SPECIFICALLY STATED THAT IN THE ABSENCE OF ANY ADDITIONAL EVIDENCE FILED BY THE REVENUE T HE COORDINATE BENCH IN THE IMPUGNED APPEAL SHOULD FOLLOW THE FIRST ORDER OF THE COORDINATE BENCH HOLDING THAT SUCH INCOME OF THE APPELLANT IS NOT ROYALTY UNDER SECTION 9(1)( VI ) (C) OF THE ACT AND HENCE ARE NOT TAXABLE IN INDIA. HE FURTHER STATED THAT ONCE T HE INCOME IS NOT CHARGEABLE TO TAX IN INDIA ACCORDING TO THE PROVISIONS OF THE INDIAN INCOME TAX ACT 1961 THERE IS NO REASON TO LOOK INTO THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT . REASONS AND DECISIONS 34. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. APPELLANT ENGAGES IN THE DESIGN, DEVELOPMENT, MANUFACTURE, MARKETING AND LICENSING OF DIGITAL WIRELESS TELECOMMUNICATION PRODUCTS AND SERVICES BASED ON CODE DIVISION MULTIPLE ACCESS [CDMA] TECHNOLOGY. THE FOUR PRINCIPAL BUSINESS UNITS OF QUALCOMM ARE AS FOLLOWS : (I) QUALCOMM CDMA TECHNOLOGIES CQCT) QCT DEVELOPS AND SUPPLIES CDMA BASED INTEGRATED CIRCUITS AND SYSTEM SOFTWARE FOR WIRELESS VOICE AND DATA COMMUNICATIONS, MULTIMEDIA FUNCTIONS A ND GLOBAL POSITIONING SYSTEM PRODUCTS. (II) QUALCOMM TECHNOLOGIES LICENSING ('QTL') QTL GRANTS LICENSES TO MANUFACTURE OF WIRELESS PRODUCTS FOR THE RIGHT TO USE PORTIONS OF QUALCOMM'S INTELLECTUAL PROPERTY PORTFOLIO, WHICH INCLUDES CERTAIN PATENT RIGHTS E SSENTIAL TO AND/OR USEFUL IN THE MANUFACTURE AND SALE OF CERTAIN WIRELESS PRODUCTS. (III) QUALCOMM WIRELESS & INTERNET 'QWI' QWI IS COMPRISED OF : QUALCOMM INTERNET SERVICES 'QIS' QIS PROVIDES TECHNOLOGY TO SUPPORT AND ACCELERATE THE CONVERGENCE OF THE WIRELESS DATA MARKET INCLUDING BREW, QCHAT AND QPOINT PRODUCTS AND SERVICES; PAGE | 22 QUALCOMM GOVERNMENT TECHNOLOGIES 'QGOV' QGOV PROVIDES DEVELOPMENT, HARDWARE AND ANALYTICAL EXPERTISE TO UNITED STATES GOVERNMENT AGENCIES INVOLVING WIRELESS COMMUNICATIONS TECHNOLOGIES; AND QUALCOMM WIRELESS BUSINESS SOLUTIONS ('QWBS') QWBS PROVIDES SATELLITE AND TERRESTRIAL BASED TWO - WAY DATA MESSAGING, POSITION REPORTING AND WIRELESS APPLICATION SERVICES TO TRANSPORTATION COMPANIES, PRIVATE FLEETS, CONSTRUCTION EQUIPMEN T FLEETS AND OTHER ENTERPRISE COMPANIES. (IV) QUALCOMM STRATEGIES INITIATIVES 'QST' QST MANAGES THE COMPANY'S STRATEGIC INVESTMENT ACTIVITIES, AND MAKE STRATEGIC INVESTMENTS TO PROMOTE THE WORLDWIDE ADOPTIONS OF CDMA BASED PRODUCTS AND SERVICES. 35. THE APPELLANT HAS DEVELOPED KEY PATENTS TO CODE DIVISION MULTIPLE ACCESS (CDMA), A METHOD FOR TRANSMITTING SIMULTANEOUS SIGNALS OVER A SHARED SPECTRUM, MOST COMMONLY APPLIED TO DIGITAL WIRELESS TECHNOLOGY. THE APPELLANT HAS ALSO GRANTED A NON - EXCLUSIVE AND NON - TRANSFERABLE WORLDWIDE LICENSE OF ITS PATENTS DEVELOPED ON CDMA TECHNOLOGY TO UNRELATED WIRELESS ORIGINAL EQUIPMENT MANUFACTURERS ('THE OEMS') TO MAKE, IMPORT, USE AND SELL CDMA HANDSETS AND WIRELESS EQUIPMENT (THE 'PRODUCTS') IN CONSIDERATION FOR A R OYALTY. THE APPELLANT'S BUSINESS MODEL IN RELATION TO GRANT OF LICENSE OF ITS PATENTS IS THAT IT LICENSES ITS PATENTS TO OEMS WHO ARE SITUATED OUTSIDE INDIA AND ARE NOT RESIDENTS OF INDIA. THE OEMS USE THE PATENTS TO MANUFACTURE THE PRODUCTS OUTSIDE INDIA. THE OEMS SOLD THE PRODUCTS TO WIRELESS CARRIERS WORLDWIDE. ROYALTY IS PAYABLE BY THE OEMS TO THE APPELLANT FOR USE OF PATENTED TECHNOLOGY [ CDMA] IN THE MANUFACTURE OF PRODUCTS AND IS DETERMINED WITH REFERENCE TO THE NET SELLING PRICE OF THE PRODUCT SOLD TO UNRELATED WIRELESS CARRIERS WORLDWIDE. THE OEMS TYPICALLY PAY A LUMP SUM ROYALTY ON ONE OR MORE INSTALLMENTS AND ONGOING ROYALTIES BASED ON THEIR SALE OF PRODUCTS. THE OEMS SOLD PAGE | 23 PRODUCTS MANUFACTURED USING THE PATENTED TECHNOLOGY, AMONG OTHER PURCHASERS , TO TATA TELESERVICES AND RELIANCE COMMUNICATIONS, BOTH OF WHOM ARE WIRELESS CARRIERS LOCATED IN INDIA. THE INDIAN WIRELESS CARRIERS PURCHASED THE PRODUCTS MANUFACTURED BY THE OEMS OUTSIDE INDIA FROM THE OEMS. THE INDIAN CARRIERS, IN TURN, SOLD THE PRODUC TS TO END USERS IN INDIA. CUSTOMERS OF THE INDIAN CARRIERS IN INDIA USE THE PRODUCTS. 36. IN THE PRESENT CASE , THE ISSUE BEFORE US IS WHETHER THE ROYALTY INCOME EARNED BY THE ASSESSEE FROM USE OF PATENTS BY THE CDMA MOBILE HANDSET MANUFACTURERS BASED OU TSIDE INDIA IS TAXABLE AS ROYALTY AS PER PROVISION OF SECTION 9 (1) (VI) (C) AND ART. 12(7)(B) OF THE DTAA BETWEEN INDIA AND THE UNITES STATES. 37. THESE ISSUES HAVE BEEN DECIDED IN THE ASSESSEES OWN CASE BY TWO DIFFERENT ORDERS OF ITAT AS UNDER : - I. IT APPEAL NOS. 3696 TO 3700 (DELHI) OF 2009 [ASSESSMENT YEARS 2000 - 01 TO 2004 - 05] DATED JANUARY 31, 2013 WHERE IN FOR ALL THOSE YEARS IT WAS HELD THAT INCOME EARNED BY THE ASSESSEE FROM OEMS IS NOT CHARGEABLE TO TAX IN INDIA U/S 9 (1) (VI) (C) OF THE ACT AS ROYALTY INCOME. II. IT APPEAL NOS. 3701 & 3702 (DELHI) OF 2009, 5343 (DELHI) OF 2010 AND 4608 (DELHI) OF 2011 [ASSESSMENT YEARS 2005 - 06 TO 2008 - 09] DATED FEBRUARY 20, 2015 WHERE IN THE ISSUE WAS SET AIDE TO THE FILE OF LD AO TO EXAMINE WHETHER THE USE OF PATENTS, FOR WHICH THE IMPUGNED PAYMENTS HAVE BEEN MADE BY THE OEMS TO THE ASSESSEE, WAS IN MANUFACTURING PROCESS OF THE HANDSETS OR IN THE USE OF THE PATENTED TECHNOLOGY EMBEDDED IN THE CDMA HANDSETS . HOWEVER, AS THIS ASPECT OF THE MATTE R BEING A HIGHLY TECHNICAL ASPECT , WHICH MAY ALSO NEED BENEFIT OF EXPERT ADVICE , FOR RECORDING NECESSARY FACTUAL FINDINGS AFTER OBTAINING TECHNICAL REPORTS ON THE SAME AND COLLECTING NECESSARY DETAILS . 38. THE ORDER OF ITAT FOR AY 2005 - 06 TO 2008 - 09 , DID N OT FOLLOW THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR FOLLOWING REASONS : - PAGE | 24 A. THAT WHETHER OEMS WERE HAVING ANY BUSINESS IN INDIA , REVENUE FILED ADDITIONAL EVIDENCES IN THAT CASE WHICH ARE DEALT WITH BY THE COORDINATE BENCH AS UNDER : - 68. IN THE COURSE OF PROCEEDINGS BEFORE US, HOWEVER, LEARNED DEPARTMENTAL REPRESENTATIVE HAS FILED A LIST OF THE OEMS WHO ARE ASSESSED TO TAX IN INDIA AND ALSO THE DETAILS ABOUT THE ASSESSING OFFICER HAVING JURISDICTION TO ASSESS THEIR INCOME IN INDIA. TH IS LIST, WHICH IS SET OUT AT PAGE 530 OF THE PAPER BOOK VOLUME II OF ADDITIONAL EVIDENCES, IS AS FOLLOWS: I. ERICSSON AB II. HUAWEI TECHNOLOGY CO. LTD. III. ZTE CORPORATION, CHINA IV. SAMSUNG ELECTRONICS LTD V. NOKIA CORPORATION VI. NOKIA SIEMENS NETWORKS OY VII. SONY ERICSSON MOBILE COMMUNICATION VIII. MOTOROLA SOLUTIONS INC 69. LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO FILED A COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005 - 06, IN THE CASE OF HUAWEI TECHNOLOGIES CO. LTD, WHICH INDICATES THAT NOT ONLY THAT THEY HAD A P RESENCE IN INDIA, THE SAID ENTITY WAS MAKING SALES, THROUGH ITS PE IN INDIA, TO DIFFERENT CUSTOMERS BASED IN INDIA. OUR ATTENTION IS ALSO INVITED TO SEVERAL DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL WHEREIN THE TAXABILITY IN THE HANDS OF THESE O EMS HAS BEEN UPHELD IN INDIA. 70. WHEN THE ASSESSEE WAS CONFRONTED WITH THESE DOCUMENTS, LEARNED COUNSEL'S DEFENCE WAS TWO FOLD. HIS FIRST POINT WAS THAT NON TAXABILITY OF THE OEMS IN INDIA WAS NOT THE ONLY REASON AS TO WHY THE COORDINATE BENCH CAME TO THE CONCLUSION THAT THE ROYALTY INCOME IN QUESTION IS NOT TAXABLE IN INDIA. HIS SECOND POINT, WHICH WAS WITHOUT PREJUDICE TO THE FIRST LINE OF DEFENCE, WAS THAT IT IS NOT ESTABLISHED THAT THE THESE OEMS WERE TAXABLE IN INDIA IN RESPECT OF THEIR BUSINESS INCOM E RELATING TO THE SALE OF THE CDMAS AND UNLESS THAT FACT PAGE | 25 IS CONCLUSIVELY ESTABLISHED, IT CANNOT AT ALL BE SUGGESTED THAT THE ASSESSEE WAS CARRYING ON ANY BUSINESS IN INDIA. 71. WE FIND THAT THERE IS MAJOR CHANGE IN THE FACTS OF THE CASE BEFORE THE COORDINA TE BENCH VIS - - VIS THE FACTS OF THE CASE AS BEFORE US. WHILE THERE WAS NOTHING TO SUGGEST THAT THE OEMS WERE SUBJECTED TO TAX IN INDIA IN RESPECT OF THEIR BUSINESS INCOME, AND THIS WAS, AS WE HAVE NOTED FROM THE EXTRACTS REPRODUCED EARLIER IN THIS ORDER, O NE OF THE FACTORS LEADING TO THE CONCLUSION THAT THE OEMS WERE NOT CARRYING ON ANY BUSINESS, RIGHT NOW WE HAVE REASONABLE EVIDENCES TO SUGGEST THE OEMS IN QUESTION, WHO HAVE MADE PAYMENTS OF THE IMPUGNED ROYALTY, WERE CARRYING ON BUSINESS IN INDIA LEADING TO THEIR TAXABILITY IN INDIA. B. WITH RESPECT TO THE EXISTENCE OF PE OF OEMS IN INDIA IT IS HELD THAT 75. HOWEVER, IN ALL FAIRNESS, AS THE ISSUE REGARDING EXISTENCE OF THE PERMANENT ESTABLISHMENTS, IN INDIA, OF THE OEMS HAS BEEN TAKEN UP FOR THE FIRST TIME BEFORE US, THIS ASPECT OF THE MATTER NEEDS TO BE EXAMINED IN DETAIL, AFTER GIVING ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND AFTER CONFRONTING THE ASSESSEE WITH ALL THE MATERIAL THAT THE REVENUE AUTHORITIES MAY GATHER IN SUPPORT OF THEIR CLAIM, AT THE ASSESSMENT STAGE. ON THIS ASPECT OF THE MATTER ALSO, THE MATTER DESERVES TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER. 76 . .. THE ASSESSEE HAS BEEN BEHAVING IN A SOMEWHAT EVASIVE MANNER ALL ALONG. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE ENDS OF JUSTICE REQUIRE THAT THIS MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ASC ERTAINING CORRECTNESS OF FOUNDATIONAL FACTS FURNISHED BY THE ASSESSEE TO THE EFFECT THAT THE OEMS WERE NOT CARRYING ON ANY BUSINESS IN INDIA, WHICH, PRIMA FACIE, SEEMS TO BE HIGHLY DOUBTFUL EVEN IF NOT CONCLUSIVELY INCORRECT. WHEN AN OEM HAS A PE IN INDIA, IT COULD NOT BE OPEN TO HIM TO SAY THAT HE WAS NOT CARRYING ON ANY BUSINESS IN INDIA. OF COURSE, THIS IS STILL TO BE EXAMINED WHETHER THE ROYALTIES PAID WERE USED 'FOR THE PURPOSES OF' THE BUSINESS WHICH WAS CARRIED ON IN INDIA. C. FOR THE REASON THAT T HE EARLIER DECISION OF COORDINATE BENCH EXAMINED THE PATENT TECHNOLOGY ONLY WITH RESPECT TO SOFTWARE PAGE | 26 AND NOT WITH RESPECT TO OTHER PATENT TECHNOLOGY OTHER THAN SOFTWARE: - 86. SOFTWARE IS AN INTELLECTUAL PROPERTY, BUT THAT CANNOT BE THE ONLY INTELLECTUAL PROPERTY EMBEDDED IN A CDMA HANDSET. THE PATENTED CDMA HANDSET TECHNOLOGY IS CLEARLY ONE SUCH INTELLECTUAL PROPERTY. LET US NOT LOSE SIGHT OF THE FACT THAT TECHNOLOGY FOR MOBIL E COMMUNICATION 'OPERATING SYSTEMS USING CDMA TECHNOLOGY' WERE INVENTED BY QUALCOMM AND QUALCOMM OWNS VITAL PATENTS IN RESPECT OF THE SAME. A CLEAR COROLLARY OF QUALCOMM HOLDING SUCH PATENTS IS THAT UNLESS QUALCOMM IS PAID ROYALTY FOR SUCH PATENTS, WHICH A RE UTILIZED IN THE CDMA HANDSETS, AS ALSO IN THE OPERATING SYSTEMS USED BY THE SERVICE PROVIDER, AND ARE OWNED BY QUALCOMM, THESE HANDSETS AND OPERATING SYSTEMS CANNOT BE USED. THE ROYALTY IS THUS FOR USE OF SUCH PATENTED TECHNOLOGY WHILE THE POINT OF ITS COLLECTION, AS A MEASURE OF CONVENIENCE AND IN CONSONANCE WITH THE INDUSTRY PRACTICE, IS FROM MANUFACTURER WHEN THE PATENTED PRODUCT IS PUT INTO USE BY SALE. WHILE THIS ARGUMENT OF THE REVENUE ON THE CONSIDERATION FOR USE OF 'INTELLECTUAL PROPERTY' WAS DUL Y RECORDED, THERE IS NO FINDING IN RESPECT OF THE SAME INASMUCH AS THERE IS NO FINDING TO THE EFFECT WHETHER OR NOT THERE WAS ANY USE OF ANY PATENTED TECHNOLOGY IN THE CDMA HANDSET IN RESPECT OF WHICH THE OEMS HAVE PAID ROYALTY TO THE QUALCOMM. 87. THE QUE STION WHETHER OR NOT THE PAYMENT OF ROYALTY WAS FOR INTELLECTUAL PROPERTY BY WAY OF PATENTED TECHNOLOGY, OTHER THAN SOFTWARE, IN THE CDMA HANDSETS SOLD IN INDIA WAS THUS, PERHAPS INADVERTENTLY, LEFT INTACT. 39. DURING THE COURSE OF HEARING, WE HAVE ASKED A Q UERY TO LD AR ABOUT STATUS OF THE ASSESSMENT MADE AFTER THE ORDER OF THE COORDINATE BENCH SETTING ASIDE THE MATTER TO THE LD. AO . THE LD AR REPLIED THAT ASSESSMENTS HAVE BEEN FRAMED AND MATTER IS PENDING BEFORE ITAT . HOWEVER, IT WAS CAUTIONED BY HIM THA T TECHNICALLY WHILE DECIDING THIS APPEAL THE ITAT SHOULD NOT SEE THAT ORDERS. HOWEVER, HE FI LED THE COPIES OF THE ORDER VIDE LETTER DATED 12 JANUARY 2018. AGREEING WITH THE LD AR , WE HAVE NOT SEEN THE ORDERS PASSED BY LD AO IN SET ASIDE PROCEEDINGS OTHER WISE THAT MAY PREJUDICE OUR MIND ON EITHER SIDE. PAGE | 27 40. IN THE PRESENT CASE, THE LD DR HAS NOT FILED ANY ADDITIONAL EVIDENCES AS FILED IN THE SECOND ORDER OF THE ITAT FOR AY 2005 - 06 TO 2008 - 09 ABOUT THE ASSESSMENT OF THE OEMS FOR THE YEAR AY 2009 - 10 TO AY 2012 - 13. NO OTHER EVIDENCES OR JUDICIAL PRECEDENTS WERE ALSO CITED BEFORE US TO SHOW THE TAXABILITY IN THE HANDS OF OEMS IN INDIA AS SHOWN IN PARA NO 69 OF THE SECOND ORDER OF ITAT . ACCORDING TO SUB - CL. (C) OF SEC. 9(L)(VI) OF THE ACT , IN CASE OF A NONRESIDENT, THE BURDEN IS ON THE REVENUE TO PROVE THAT THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR TH E PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. IN ABSENCE OF ANY SUCH EVIDENCES FILED BY THE REVENUE, WE ARE NOT IN A POSITION TO HOLD THAT OEMS WERE CARRYING ON ANY BUSINESS IN INDIA. EVEN FOR SOME OF THE YEARS IT WAS SHOWN THAT THE O EMS WERE CARRYING ON BUSINESS IN INDIA BUT NOT WITH RESPECT TO CDMA PATENT TECHNOLOGY, THOSE WERE ALL THE EVIDENCE SHOWING THE BUSINESS OF OEMS FOR GSM TECHNOLOGY. WE ALSO DO NOT AGREE WITH THE CONTENTION OF THE LD DR THAT ADDITIONAL EVIDENCES ARE NOT RE QUIRED FOR THOSE YEARS . THEREFORE, IN THE PRESENT CASE , WE DO NOT HAV E ANY EVIDENCE TO SUGGEST THAT OEMS IN QUESTION , WHO HAVE MADE PAYMENTS OF ROYALTY , WERE CARRYING ON ANY BUSINESS IN INDIA OF CDMA PATENT TECHNOLOGY LEADING TO THEIR TAXABILITY IN IND IA. 41. I N PARA NO 75 & 76 OF THE SECOND ORDER OF ITAT WHERE THE ISSUE OF EXISTENCE OF PE WAS TAKEN FOR THE FIRST TIME BEFORE THE COORDINATE BENCH , THE COORDINATE BENCH THOUGHT IT FIT THAT MATTER NEEDS TO BE EXAMINED IN DETAIL AND THEREFORE IT WAS SET ASIDE TO THE FILE OF THE LD AO. IN THE PRESENT CASE BEFORE US, NO SUCH EVIDENCES WERE FILED OR ISSUE IS RAISED. 42. FURTHER, IN THE APPEAL BEFORE US THE LD AO HAS EXAMINED THE TAXABILITY OF ROYALTY UNDER BOTH THE LIMBS OF THE PROVISION OF SECTION 9(1)(VI) (C ) OF THE ACT AS IT IS EVIDENT FROM PARA NO 2 (III) OF THE ASSESSMENT ORDER. 43. REGARDING THE DECISION OF HON ANDHRA PRADESH HIGH COURT IN CASE OF SYED ASIFUDDIN AND ORS. VS THE STATE OF ANDHRA PRADESH AND ... ON 29 JULY, 2005 [ EQUIVALENT CITATIONS: 2006 (1) ALD CRI 96, 2005 CRILJ 431 ], IN THE FIRST DECISION OF ITAT IT WAS REFERRED BY LD DR IN PARA NO 30 OF THE PAGE | 28 ORDER AND IN PARA NO 31 REJOINDER OF THE LD AR WAS ALSO CONSIDERED . THEN COORDINATE BENCH IN ITS REASONS AND DECI SION ALSO DEALT WITH THE DECISION IN PARA NO 141 AND 143 OF THE ORDER. THEREFORE, WE DO NOT AGREE WITH THE CONTENTION THAT THE DECISION OF HON. A N DHRA PRADESH HIGH COURT WAS NOT AT ALL CONSIDERED. THEREFORE, WE ALSO DO NOT AGREE WITH THE ARGUMENTS OF THE LD DR THAT FIRST ORDER OF ITAT WAS NOT IN CONSONANCE WITH THE ORDER OF THE HON AP HIGH COURT. HERE, WE CANNOT QUESTION THE WISDOM OF THE COORDINATE BENCH THAT HOW THE DECISION OF HON'BLE HIGH COURT S HOULD HAVE BEEN APPLIED. THAT IS FOR HON'BLE HIGHER JUDI CIAL FORUMS TO DECIDE. 44. THEREFORE IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES , FACTS OF IMPUGNED APPEALS BEFORE US ARE SIMILAR TO THE FACTS AND ISSUES DECIDED BY THE COORDINATE BENCH IN THE FIRST ORDER FOR AY 2000 - 01 TO 2004 - 05 DATED 31/ 01/2013 IN ITA NO 3696 TO 3700/D EL/20109. THE COORDINATE BENCH DECIDED THE ISSUE AS UNDER : - ON MERITS : 127. WE NOW PROCEED TO DISPOSE OF THE MERITS : WHETHER THE 'ROYALTY' INCOME EARNED BY QUALCOMM FROM OEMS IS TAXABLE UNDER SEC. 9(1)(VI)(C) OF THE IT ACT 1961 : THE ISSUE IN QUESTION IS WHETHER THE SAID 'ROYALTY' IS TAXABLE UNDER SEC. 9(L)(VI)(C) OF THE ACT. FOR READY REFERENCE SEC. 9(L)(VI) OF THE ACT IS EXTRACTED BELOW. '( VI ) INCOME BY WAY OF ROYALTY PAYABLE BY THE GOVERNMENT; OR A PERSON WHO IS A RESIDENT EXCEPT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURC E OUTSIDE INDIA; OR A PERSON WHO IS A NON - RESIDENT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA.' PAGE | 29 128. SEC. 9(L)(VI)(C) IS A DEEMING PROVISION AND HAS TO BE CONSTRUED STRICTLY. A PLAIN READING OF THIS SECTION SHOWS THAT ANY INCOME BY WAY OF ROYALTY IS TAXABLE IN INDIA, IF SUCH RO YALTY IS PAYABLE BY A NON - RESIDENT IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED : FOR THE PURPOSES OF BUSINESS, OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA. 129. WHEN AN ASSESSEE CLAIMS THAT IT IS COVERED BY EXCEPTIONS TO CL. (B) TO SUB - CL. (VI) TO SEC. 9(1), THE BURDEN LIES ON THE TAXPAYER TO PROVE THAT IT FALLS WITHIN THOSE EXEMPTION PROVISIONS. IN COMPARISON, WHEN IT IS CLAIMED BY RE VENUE THAT THE INCOME FALLS UNDER CL. (C) TO SUB - CL. (VI) OF SEC. 9(1) THE BURDEN IS ON THE REVENUE TO PROVE THE SAME. 130. THUS TO TAX THE ROYALTY INCOME EARNED BY QUALCOMM FROM OEM'S LOCATED OUTSIDE INDIA, UNDER THE DEEMING PROVISION OF SEC. 9(L)(VI)(C) OF THE ACT, THE BURDEN IS ON THE REVENUE TO PROVE THAT THE OEMS CARRY ON BUSINESS IN INDIA AND THAT THEY HAVE USED QUALCOMM'S PATENTS FOR THE PURPOSES OF SUCH BUSINESS IN INDIA; OR THAT THEY HAVE USED QUALCOMM'S PATENTS FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM A SOURCE IN INDIA. THUS WE AGREE WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE APPELLANT THAT THE BURDEN OF PROOF WHEN IT FALLS WITHIN THE EXCEPTIONS TO SEC. 9(L)(VI)(B) IS ON THE ASSESSEE AND ON THE CONTRARY THE BURDEN IS ON THE REVENUE W HEN THEY CHOSE TO INVOKE SEC. 9(L)(VI)(C). THIS PROPOSITION WAS ALSO ACCEPTED BY THE REVENUE . 131. THE LEARNED SPECIAL COUNSEL FOR THE REVENUE SUBMITTED THAT THE LANGUAGE EMPLOYED IN SEC. 9(L)(VI)(C) IS 'USED FOR THE PURPOSE OF' IN CONTRADISTINGUISHED FROM 'UTILIZED IN THE BUSINESS' USED IN SEC. 9(L)(VII)(C). RELYING ON THE LANGUAGE EMPLOYED IN BOTH THE SECTIONS, HE SUBMITTED THAT THE SITUS OF THE USE OF INTELLECTUAL PROPERTY IS NOT MATERIAL. IT MAY BE USED ANYWHERE (IN OR OUTSIDE INDIA). HE SUBMITTED THAT WHAT IS MATERIAL IS THE PURPOSE OF THE USE OF THE PROPERTY, WHETHER IT IS USED FOR THE PURPOSE OF BUSINESS CARRIED ON IN INDIA OR FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE IN INDIA, THEN SEC. 9(L)(VI)(C) OF THE ACT IS ATTRACTED. 132. IN OUR VIEW WHAT IS IMPORTANT IS NOT WHETHER RIGHT TO PROPERTY IS USED 'IN' OR 'FOR THE PURPOSE OF' A BUSINESS, BUT TO DETERMINE WHETHER SUCH BUSINESS IS 'CARRIED ON BY SUCH PERSON IN INDIA'. 133. THE OTHER ISSUE IS WHETHER THE INDIAN CARRIERS CONSTITUTE A SOURCE OF INCOM E FOR THE OEMS IN INDIA AND WHETHER LICENSING THE PATENTED INTELLECTUAL PROPERTY TO THE OEMS, HAS RESULTED IN MAKING AVAILABLE THE PATENTED IPS TO THE INDIAN TELECOM OPERATORS FOR COMMERCIALLY EXPLOITING THE CDMA TECHNOLOGY IN INDIA. IN OUR VIEW NEITHER TH E AO NOR THE CIT(A) HAVE DEMONSTRATED, THAT FOR THE YEARS UNDER APPEAL, THE OEMS HAVE USED QUALCOMM'S RIGHT/INFORMATION/PROPERTY (I.E. PATENTS) FOR THE PURPOSE OF PAGE | 30 CARRYING ON BUSINESS IN INDIA OR FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM A SOURCE IN INDIA. 134. THE LEARNED AO AS WELL AS THE LEARNED CIT(A) HAVE BASED THERE FINDINGS ONLY ON THE 16 LICENSING AGREEMENTS BETWEEN OEMS AND THE ASSESSEE. THE LEARNED SPECIAL COUNSEL. MR. G.C. SRIVASTAVA FOR THE FIRST TIME BEFORE THIS TRIBUNAL FILED THE FOLLOW ING AGREEMENTS AS ADDITIONAL EVIDENCE TO SUBSTANTIATE THE CASE OF REVENUE TO TAX THE ROYALTY INCOME EARNED BY QUALCOMM UNDER SEC. 9(1)(VI)(C) OF THE ACT: ( I ) EQUIPMENT PURCHASE AGREEMENT BETWEEN THE TATA TELE SERVICES AND MOTOROLA INC. DT. 8TH DEC., 2007; ( I I ) EQUIPMENT PURCHASE AGREEMENT BETWEEN THE TATA TELE SERVICES AND ZTE CORPORATION DT. 19TH FEB., 2007. 135. WE AGREE WITH MR. DASTUR, THAT COGNIZANCE CANNOT BE TAKEN OF THESE AGREEMENTS AS THEY RELATE TO THE FINANCIAL YEAR 2006 - 07 RELEVANT TO ASST. YR. 2007 - 08 AND ASST. YR. 2007 - 08 HAVE NO RELEVANCE TO THE CASE ON HAND. THE LEARNED SPECIAL COUNSEL SOUGHT TO MAKE OUT A NEW CASE WITH THE AID OF THESE ADDITIONAL AGREEMENTS. 136. NEVERTHELESS WE CONSIDER MR. G.C. SRIVASTAVA'S SUBMISSION THAT THESE AGREEMENTS OF TATA TELE SERVICES CAN BE RELIED UPON FOR THE LIMITED PURPOSE OF UNDERSTANDING THE BUSINESS MODEL OF THE OEMS IN RELATION TO SALE OF CDMA PRODUCTS TO INDIA. THE PLEA THAT SIMILAR AGREEMENTS WOULD HAVE BEEN ENTERED INTO BY THE INDIA TELECOM OP ERATORS WITH THE OEMS FOR PURCHASE OF NETWORK EQUIPMENT, CANNOT BE ACCEPTED AS IT WOULD BE A CONJECTURE AND SURMISE. 137. THE AO AS WELL AS THE CIT(A)'S ORDER ARE BASED ON 16 LICENSE AGREEMENTS ENTERED INTO BY QUALCOMM WITH OEMS. REDACTED COPIES OF THE LIC ENSE AGREEMENTS WERE FILED BEFORE US. THE APPELLANT DURING THE COURSE OF THE HEARING FILED AN AFFIDAVIT DISCLOSING THE NAMES OF THE OEMS ALONG WITH THE DATES OF EXECUTION OF THE LICENSE AGREEMENTS. ADMITTEDLY THESE AGREEMENTS WERE ENTERED INTO ON 13TH AUG. , 1993 AND CERTAIN OTHER DATES. MAJORITY OF THE AGREEMENTS WERE EXECUTED PRIOR TO YEAR 2000 I.E. BEFORE CDMA SERVICES WERE LAUNCHED IN INDIA. WE ARE BASICALLY CONCERNED WITH THESE AGREEMENTS ONLY. FOR READY REFERENCE WE EXTRACT RELEVANT CLAUSES FROM THE FO LLOWING AGREEMENTS : I. SUBSCRIBER UNIT LICENSE AGREEMENT BY AND BETWEEN QUALCOMM AND THE OEM; II. SUBSCRIBER UNIT AND INFRASTRUCTURE EQUIPMENT LICENSE PAGE | 31 AGREEMENT BETWEEN QUALCOMM AND THE OEM; III. WE ALSO EXTRACT THE CLAUSES RELIED UPON BY THE REVENUE IN THE FOLLOWING AGREEMENTS TO CONSIDER THE WITHOUT PREJUDICE ARGUMENTS OF THE ASSESSEE. IV. EQUIPMENT PURCHASE AGREEMENT BETWEEN THE TATA TELE SERVICES AND MOTOROLA INC. DT. 8TH DEC, 2007; V. EQUIPMENT PURCHASE AGREEMENT BETWEEN THE TATA TELE SERVICES AND ZTE CORPORATION DT. 19TH FEB., 2007. 138. IN ADDITION, CERTAIN CLAUSES FROM THE FOLLOWING TWO AGREEMENTS ARE ALSO EXTRACTED AS RELIANCE WAS PLACED ON THE SAME : I. MOU DT. 26TH MARCH, 2001 BY AND BETWEEN RELIANCE AND QUALCOMM (REVENUE PAPER BOOK DT. 29TH JUNE, 2 012) II. TECHNICAL SERVICES AGREEMENT BETWEEN QUALCOMM AND RELIANCE DT. 16TH OCT., 2001. SUBSCRIBER UNIT LICENSE AGREEMENT BETWEEN QUALCOMM AND THE OEMS FOR MANUFACTURE OF CDMA HANDSETS (AGREEMENT REFERENCE PAGE NO. 226 TO PAGE NO. 263 OF THE APPELLANT'S PAPER BOOK) EXTRACT OF RELEVANT CLAUSES FROM THE AGREEMENT IN RELATION TO GRANT OF LICENSE. CLAUSE 5.1 GRANT OF LICENSE 'SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO TIMELY PAYMENT OF THE ROYALTIES SET FORTH HEREIN, QUALCOMM HEREBY GRANTS TO LICENSEE A PERSONAL, NON - TRANSFERABLE, WORLDWIDE AND NON - EXCLUSIVE LICENSE UNDER QUALCOMM'S INTELLECTUAL PROPERTY SOLELY FOR WIRELESS APPLICATIONS TO (A) MAKE ( AND HAVE MADE), IMPORT, USE AND SELL, LEASE OR OTHERWISE DISPOSE OF SUBSCRIBER UNITS, AND (B) TO MAKE (AND HAVE MADE) COMPONENTS (PROVIDED SUCH COMPONENTS HAVE BEEN EXCLUSIVELY DESIGNED BY LICENSEE AND WHICH DESIGN IS OWNED AND USED EXCLUSIVELY BY LICENSEE ) AND IMPORT, USE AND SELL, LEASE AND OTHERWISE DISPOSE OF COMPONENTS BUT ONLY IF SUCH COMPONENTS ARE INCLUDED AS PART OF AND WITHIN SUBSCRIBER UNITS SOLD BY LICENSEE OR AS REPLACEMENT PARTS FOR SUBSCRIBER UNITS PREVIOUSLY SOLD BY LICENSEE. NO OTHER, FURTH ER OR DIFFERENT LICENSE IS HEREBY GRANTED OR IMPLIED.' QUALCOMM'S INTELLECTUAL PROPERTY (PAGE NO. 236 OF THE PAPER BOOK) 'QUALCOMM'S INTELLECTUAL PROPERTY' MEANS QUALCOMM'S TECHNICALLY NECESSARY IPR AND QUALCOMM'S INCLUDED COMMERCIALLY NECESSARY IPR AND CO MPANY 3 PATENTS; PROVIDED THAT, NOTWITHSTANDING THE FOREGOING, THE TERM PAGE | 32 'QUALCOMM'S INTELLECTUAL PROPERTY' SHALL NOT INCLUDE ANY INTELLECTUAL PROPERTY, INCLUDING BUT NOT LIMITED TO PATENTS, OWNED BY SNAP TRACK. INC. SUBSCRIBER UNIT (PAGE NO. 238 OF THE PAP ER BOOK) : 'SUBSCRIBER UNIT' MEANS A COMPLETE CDMA TELEPHONE, A CORDLESS BASE STATION AND/OR A CDMA SUBSCRIBER KNOCKDOWN KIT AND 'SUBSCRIBER UNITS' MEANS A COMPLETE CDMA TELEPHONE, A CORDLESS BASE STATION AND CDMA SUBSCRIBER KNOCKDOWN KITS. COMPONENTS (PAG E NO. 233 OF THE PAPER BOOK) : COMPONENTS' MEANS APPLICATION SPECIFIC INTEGRATED CIRCUITS ('ASIC'S'), ELECTRONIC DEVICES, INTEGRATED CIRCUITS, INCLUDING FIRMWARE THEREON AND ACCOMPANYING SOFTWARE, AND OR FAMILIES OF DEVICES FOR USE IN WIRELESS SUBSCRIBER E QUIPMENT. CDMA ASIC (PAGE NO. 231) : 'CDMA ASIC' MEANS QUALCOMM'S MOBILE STATION MODEM (MSM) CDMA APPLICATION SPECIFIC INTEGRATED CIRCUIT, AND ANY REVISION, GENERATION, MODIFICATIONS OR INTEGRATION TO OR OF THE MSM, PURCHASED BY LICENSEE FROM QUALCOMM. ( I I ) SUBSCRIBER UNIT AND INFRASTRUCTURE EQUIPMENT LICENSE AGREEMENT BETWEEN QUALCOMM AND LICENSEE (I.E. OEM). (AGREEMENT REFERENCE - PAGE NO. 264 TO PAGE NO. 316 OF THE APPELLANT'S' PAPER BOOK) EXTRACT OF RELEVANT CLAUSES FROM THE AGREEMENT IN RELATION TO GRANT OF LICENSE CLAUSE 4.1 - GRANT OF LICENSE FROM QUALCOMM (PAGE NO. 279) : SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO TIMELY PAYMENT OF THE LICENSE FEES AND ROYALTIES SET FORTH HEREIN, ON THE EFFECTIVE DATE, 'QUAL COMM HEREBY GRANTS TO LICENSEE, SOLELY FOR WIRELESS APPLICATIONS, A PERSONAL, 'NON - TRANSFERABLE, WORLDWIDE AND NON - EXCLUSIVE LICENSE (WITHOUT THE RIGHT TO SUBLICENSE) (1) UNDER QUALCOMM'S APPLICABLE SUBSCRIBER PATENTS TO (A) MAKE (AND HAVE MADE), IMPORT, U SE, SELL, OFFER TO SELL, LEASE OR, OTHERWISE DISPOSE OF SUBSCRIBER UNITS AND RADIOMODULES AND (B) TO MAKE (AND HAVE MADE) COMPONENTS AND IMPORT, USE, SELL, OFFER TO SELL, LEASE AND OTHERWISE DISPOSE OF COMPONENTS BUT ONLY IF SUCH COMPONENTS ARE INCLUDED AS PART OF AND SOLD WITHIN LICENSEE SUBSCRIBER UNITS OR .LICENSEE RADIOMODULES OR AS REPLACEMENT PARTS FOR SUBSCRIBER UNITS OR RADIOMODULES PREVIOUSLY SOLD BY LICENSEE AND (2) UNDER QUALCOMM'S APPLICABLE INFRASTRUCTURE PATENTS TO (A) MAKE (AND HAVE MADE), IM PORT, USE SELL, OFFER TO SELL, LEASE OR OTHERWISE DISPOSE OF INFRASTRUCTURE EQUIPMENT AND (B) TO MAKE (AND HAVE MADE) COMPONENTS AND IMPORT, USE, SELL, OFFER TO SELL, LEASE AND OTHERWISE DISPOSE OF COMPONENTS BUT ONLY IF SUCH COMPONENTS ARE INCLUDED AS PAR T OF AND SOLD WITHIN LICENSEE INFRASTRUCTURE EQUIPMENT OR AS REPLACEMENT PARTS FOR INFRASTRUCTURE EQUIPMENT PREVIOUSLY SOLD BY PAGE | 33 LICENSEE. NO OTHER, FURTHER OR DIFFERENT LICENSE IS HEREBY GRANTED OR IMPLIED. NOTWITHSTANDING THE FOREGOING, LICENSEE, MAY EXERC ISE ITS 'HAVE MADE' RIGHTS ABOVE WITH RESPECT TO COMPONENTS NOT DESIGNED BY OR FOR LICENSEE (ACCORDING TO SPECIFICATIONS PROVIDED BY LICENSEE) ONLY TO THE EXTENT THAT THE THIRD PARTY BENEFITING FROM SUCH 'HAVE MADE' RIGHTS DOES NOT ASSERT, THROUGH ITSELF O R ITS AFFILIATED ENTITIES PATENT INFRINGEMENT LITIGATION AGAINST QUALCOMM OR LICENSEE AND QUALCOMM AGREES THAT IT WILL NOT CHARGE ROYALTIES TO ANY THIRD PARTY WITH RESTRICT TO THE SALE BY SUCH THIRD PARTY OF COMPONENTS TO LICENSEE TO THE EXTENT THAT SUCH T HIRD PARTY IS MAKING SUCH SALE UNDER LICENSEE 'HAVE MADE' RIGHTS AND IS NOT USING OR OTHERWISE INFRINGING UPON ANY OF QUALCOMM'S PATENTS NOT THE SUBJECT OF SUCH 'HAVE MADE' RIGHTS.' QUALCOMM'S APPLICABLE SUBSCRIBER PATENTS (PAGE NO. 275) : 'QUALCOMM'S APPL ICABLE SUBSCRIBER PATENTS' MEANS QUALCOMM'S EARLY PATENTS AND ONLY IF LICENSEE ELECTS UNDER SEC. 4.4.6, EITHER QUALCOMM'S LATER PATENTS OR QUALCOMM'S OTHER PATENTS, AS THE CASE MAY BE. SUBSCRIBER UNIT (PAGE NO. 278) : 'SUBSCRIBER UNIT' MEANS A COMPLETE CDM A AND/OR MULTI - MODE CDMA USER TERMINAL, INCLUDING BUT NOT LIMITED TO MOBILE, TRANSPORTABLE, AND PORTABLE TELEPHONES, WHICH CAN BE USED, WITHOUT ANY ADDITIONAL EQUIPMENT OR COMPONENTS BEING ATTACHED THERETO, TO TRANSMIT AND/OR RECEIVE TRANSMISSIONS FOR WIRE LESS APPLICATIONS. RADIOMODULE (PAGE NO. 277) : 'RADIOMODULE' MEANS AN ELECTRONICS SUB - ASSEMBLY FOR WIRELESS APPLICATIONS WHICH (I) INCLUDES, AT A MINIMUM, A PRINTED CIRCUIT BOARD, MULTIPLE INDIVIDUALLY PACKAGED INTEGRATED CIRCUITS MOUNTED ON THE PRINTED CIRCUIT BOARD, A CDMA COMPONENT, AND ANY EMBEDDED SOFTWARE, AND (II) PROVIDES RF/ANALOG AND DIGITAL AND BASEBAND PROCESSING NECESSARY TO IMPLEMENT THE FUNCTIONS OF A CDMA SUBSCRIBER UNIT SUCH AS TO INITIATE AND/OR RECEIVE WIRELESS TELECOMMUNICATIONS TRANSMISSIONS; PROVIDED THAT A RADIOMODULE SHALL NOT BE CAPABLE OF INITIATING AND/OR RECEIVING WIRELESS TELECOMMUNICATION TRANSMISSIONS WITHOUT BEING INCORPORATED INTO OR ATTACHED TO THE PRODUCT OF WHICH IT IS INTENDED TO BE A SUB - ASSEMBLY. COMPONENTS (PAGE NO. 271): 'COMPONENTS' MEANS APPLICATION SPECIFIC I NTEGRATED CIRCUITS (ASIC'S), ELECTRONIC DEVICES, MULTI - CHIP MODULES, INTEGRATED CIRCUITS AND/OR FAMILIES OF DEVICES, INCLUDING FIRMWARE THEREON AND SOFTWARE ASSOCIATED THEREWITH, FOR USE IN WIRELESS APPLICATIONS. QUALCOMM'S APPLICABLE INFRASTRUCTURE PATENT S (PAGE NO. 275) : 'QUALCOMM'S APPLICABLE INFRASTRUCTURE - PATENTS' MEANS (I) EVERY PATENT ISSUED OR TO BE ISSUED TO QUALCOMM IN ANY COUNTRY OF THE WORLD WHICH CLAIMS PRIORITY FROM A PATENT APPLICATION FILED ANYWHERE IN THE WORLD ON OR PRIOR TO THE EFFECTIVE DATE AND (II) EVERY PATENT ISSUED OR TO BE ISSUED TO QUALCOMM PAGE | 34 IN ANY COUNTRY OF THE WORLD WHICH (A) CLAIMS PRIORITY FROM A PATENT APPLICATION FILED ANYWHERE IN THE WORLD DURING THE LIFE OF THE APPLICABLE CDMA WIRELESS STANDARD AND (B) ARE TECHNICALLY NECE SSARY TO USE, MAKE AND/OR SELL INFRASTRUCTURE EQUIPMENT COMPLIANT WITH SUCH STANDARD. INFRASTRUCTURE EQUIPMENT (PAGE NO. 272) : 'INFRASTRUCTURE EQUIPMENT' MEANS NETWORK EQUIPMENT FOR USE AS A PART OF ANY LAND MOBILE RADIO - TELEPHONE SYSTEM FOR WIRELESS APP LICATIONS, INCLUDING BUT NOT LIMITED TO BTSS, BSCS AND SYSTEM SWITCHES (AND EQUIPMENT AND SOFTWARE FOR CORPORATION THEREIN), BUT THE TERM DOES NOT INCLUDE, BY WAY OF EXAMPLE AND NOT BY WAY OF LIMITATION, COMPONENTS, SUBSCRIBER UNITS, RADIOMODULES OR ANY OT HER SUBSCRIBER EQUIPMENT. 2. AGREEMENT BETWEEN TATA TELESERVICES LTD. AND ZTE CORPORATION FOR SUPPLY OF CDMA EQUIPMENT (REFERENCE - AGREEMENT 2 FILED BY THE REVENUE AS ADDITIONAL EVIDENCE) EXTRACT OF RELEVANT CLAUSES FROM THE AGREEMENT ON TRANSFER OF TITLE AND RISK OF THE EQUIPMENT CLAUSE 14.1 - TITLE AND RISK OF LOSS (PAGE NO. 33) : 'WITHOUT PREJUDICE TO TTSL'S RIGHT TO REJECT AS SET FORTH IN ART. 6.4 OF THIS AGREEMENT, THE TITLE OF ALL EQUIPMENT SOLD HEREUNDER SHALL PASS FROM THE SUPPLIER TO TTSL IN HIGH S EAS BEFORE ARRIVAL IN INDIA AND THE RISK OF LOSS TO THE HARDWARE PORTION OF ALL EQUIPMENT SHALL PASS FROM SUPPLIER TO TTSL UPON PROVISIONAL ACCEPTANCE.' 3. AGREEMENT BETWEEN TATA TELESERVICES LTD. AND MOTOROLA INC. FOR SUPPLY OF EQUIPMENT (AGREEMENT 1 FIL ED BY THE REVENUE) EXTRACT OF RELEVANT CLAUSES FROM THE AGREEMENT IN RELATION TO TRANSFER OF TITLE AND RISK OF THE EQUIPMENT CLAUSE 14.1 - TITLE AND RISK OF LOSS (PAGE NO. 14): 'WITHOUT PREJUDICE TO TTSL'S RIGHT TO REJECT AS SET FORTH IN ART. 6.4 OF THIS A GREEMENT, THE TITLE AND THE RISK OF LOSS TO THE HARDWARE PORTION OF ALL EQUIPMENT SOLD HEREUNDER SHALL PASS FROM SUPPLIER TO TTSL UPON DELIVERY IN ACCORDANCE WITH CIP INCOTERMS 2000 PORT OF SHIPMENT.' 139. BASED ON THE ABOVE, WE NOW PROCEED TO ANSWER THE F IRST QUESTION AS TO WHETHER THE OEMS HAVE CARRIED ON THE BUSINESS IN INDIA AND THAT THEY HAVE USED THE APPELLANTS FOR THE PURPOSE OF CARRYING ON SUCH BUSINESS IN INDIA. 140. WHAT IS LICENSED IN THESE 16 AGREEMENTS IS THE USE OF 'INTELLECTUAL PROPERTY' OWN ED AND PATENTED BY QUALCOMM FOR THE PURPOSE OF MANUFACTURE OF SUBSCRIBER UNITS AND INFRASTRUCTURE EQUIPMENT. THESE AGREEMENTS WERE ENTERED MUCH BEFORE CDMA, TECHNOLOGY - WAS INTRODUCED IN INDIA. A PERUSAL OF THESE AGREEMENTS DOES NOT DEMONSTRATE THAT THESE ARE INDIA SPECIFIC. IN FACT THEY ARE NOT SPECIFIC TO ANY PARTICULAR COUNTRY. THE OEMS MANUFACTURED PRODUCTS OUTSIDE INDIA AND SOLD THEM TO NOT ONLY SERVICE PROVIDERS IN INDIA PAGE | 35 BUT ALSO TO NUMBER OF OTHERS IN OTHER COUNTRIES. THE LICENSE TO MANUFACTURE PRODU CTS BY USING THE PATENTED INTELLECTUAL PROPERTY OF THE ASSESSEE HAS NOT BEEN USED IN INDIA AS THE PRODUCTS ARE MANUFACTURED OUTSIDE INDIA AND WHEN SUCH PRODUCTS ARE SOLD TO PARTIES IN INDIA IT CANNOT BE SAID THAT OEMS HAVE DONE BUSINESS IN INDIA. 141. THE REVENUE HEAVILY RELIED ON THE EQUIPMENT PURCHASE AGREEMENT ENTERED BY TATA WITH MOTOROLA AND ZTE TO PROVE THAT THE OEMS CARRY ON BUSINESS IN INDIA AND THAT THEY HAVE USED THE QUALCOMM PATENTS FOR THE PURPOSE OF CARRYING ON SUCH BUSINESS IN INDIA. HIS CONTE NTION THAT THE OEMS CARRY ON BUSINESS IN INDIA IS MAINLY BASED ON THE FOLLOWING : ( A ) THE WORD 'BUSINESS' DEFINED UNDER THE ACT IS OF WIDE IMPORT AND ENCOMPASSES A HOST OF ACTIVITIES. HE CONTENDED THAT IF MANUFACTURING IS DONE IN ONE JURISDICTION AND SALE IN THE OTHER, IT CANNOT BE SAID THAT BUSINESS IS DONE IN ONE AND NOT IN THE OTHER JURISDICTION. ( B ) OEMS CARRY OUT INSTALLATION OF EQUIPMENT IN INDIA FOR THE INDIAN TELECOM OPERATORS; ( C ) THE ENTIRE SUPPLY OF HANDSETS AND EQUIPMENTS THOUGH MANUFACTURED OUTSIDE INDIA ARE INDIA SPECIFIC AND NOT OFF THE SHELF PRODUCTS WHICH CAN BE SOLD TO ANYONE IN ANY LOCATION. THE TECHNOLOGY IS USED BY THE OEMS TO MANUFACTURE INDIA SPECIFIC SUPPLIES. HENCE THERE IS A CERTAIN DEGREE OF USE OF THE PROPERTY FOR THE PURPOSE OF CARRYING ON BUSINESS IN INDIA; ( D ) PLACING RELIANCE ON THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SYED ASIFUDDM ( SUPRA ), HE SUBMITTED THAT THE HANDSETS ARE SPECIFICALLY DESIGNED AND PROGRAMMED FOR RELIANCE. ( E ) RELYING ON VARIOUS CLAUSES IN THE EQUIPMENT PURCHASE AGREEMENT ENTERED BY TATA WITH ZTE AND MOTOROLA, HE CONTENDED THAT DESPITE THE DECLARATION IN CL. 14.1 TO THE AGREEMENTS, THE AGREEMENT HAS TO BE READ AS A WHOLE TO ASCERTAIN THE INTENT OF THE PARTIES . HE SUBMITTED THAT IF THE AGREEMENT IS READ AS A WHOLE, THE INTENT OF THE PARTIES IS AMPLY CLEAR THAT THE TITLE OF THE EQUIPMENT PASSES IN INDIA AT THE SITE WHERE THE DELIVERIES ARE MADE OR IN A WORST SCENARIO AT THE AIRPORT/SEAPORTS IN INDIA. 142. WE AR E UNABLE TO AGREE WITH THE CONTENTION OF THE LEARNED SPECIAL COUNSEL FOR THE FOLLOWING REASONS : ( A ACCEPTING SUCH A PROPOSITION WOULD LEAD TO A SITUATION WHERE EVERY PURCHASE AND SALE OF GOODS MADE BY ANY PARTY IN INDIA PAGE | 36 ) WITH ANY PARTY IN OTHER COUNTRIE S WOULD BE CONSIDERED AS IF THOSE PARTIES ARE DOING BUSINESS IN INDIA AND SALE TO INDIA WITHOUT ANY OPERATIONS BEING CARRIED OUT IN INDIA WOULD AMOUNT TO BUSINESS WITH INDIA AND NOT BUSINESS IN INDIA. FOR THE BUSINESS TO BE CARRIED OUT IN INDIA THERE SHOUL D BE SOME ACTIVITY CARRIED OUT IN INDIA. THUS THE ARGUMENT THAT IF MANUFACTURING IS DONE IN ONE JURISDICTION AND SALES IN THE OTHER JURISDICTION, THEN THERE IS BUSINESS IN ANOTHER JURISDICTION IS DEVOID OF MERIT. FURTHER ON THE FACTS OF THE CASE, FOR THE R EASONS GIVEN LATER IN THIS ORDER, EVEN THE SALE CANNOT BE SAID TO HAVE BEEN DONE IN INDIA. ( B ) THE CONTENTION OF THE REVENUE THAT OEMS (I.E. MOTOROLA AND ZTE) CARRIES OUT INSTALLATION WORK FOR TATA AND HENCE THERE IS SOME BUSINESS ACTIVITY BEING CARRIED BY THE OEM IN INDIA IS FACTUALLY INCORRECT AND CONTRARY' TO THE CLAUSES IN THE EQUIPMENT PURCHASE AGREEMENT WHICH CLEARLY STATES THAT INSTALLATION OF THE EQUIPMENT IS CARRIED OUT BY A THIRD PARTY APPOINTED BY THE PURCHASER (I.E. TATA) IN CONSULTATION WITH THE SUPPLIER. EVEN PRESUMING FOR A MOMENT THAT THE INSTALLATION OF THE EQUIPMENT IS DONE BY THE OEMS IN INDIA, THE REVENUE HAS FAILED TO DEMONSTRATE/PROVE THAT THE PATENTS LICENSED BY QUALCOMM ARE USED BY MOTOROLA/ZTE FOR CARRYING OUT SUCH INSTALLATION ACTIVITIES IN INDIA. ( C ) THE NEXT CONTENTION OF THE REVENUE (IS) THAT THE PATENTED TECHNOLOGY IS USED BY THE OEMS TO MANUFACTURE INDIA SPECIFIC PRODUCTS AND THAT THE HANDSETS ARE CUSTOMIZED AND PROGRAMMED TO INCLUDE A CODE ASSIGNED TO A SPE CIFIC OPERATOR. HENCE THERE IS A CERTAIN DEGREE OF USE OF THE PROPERTY FOR THE PURPOSE OF CARRYING ON BUSINESS IN INDIA. 143. THIS ARGUMENT CANNOT BE ACCEPTED FOR THE FOLLOWING REASONS : ( I ) DURING THE COURSE OF HEARING IT IS ADMITTED THAT HANDSETS IN QUESTION EMBODY TWO TECHNOLOGIES (A) TECHNOLOGY WITH RESPECT TO THE FUNCTIONALITY OF THE HANDSETS AND TECHNOLOGY WITH RESPECT TO CDMA CONNECTIVITY. ( I I ) THE PATENTS OF QUALCOMM ARE ADMITTEDLY FOR MANUFACTURE OF HANDSETS AND INFRASTRUCTURE EQUIPMENT WHICH ARE SOLD WORLDWIDE. THERE ARE NO PATENTS OF QUALCOMM WHICH ARE USED FOR CUSTOMIZATION OF HANDSET WITH RESPECT TO CDMA CONNECTIVITY. PAGE | 37 ( I I I ) THE PATENTS IN QUESTION, ON WHICH ROYALTY IS SOUGHT TO BE TAXED, HAVE NOTHING TO DO WITH THE FUNCTIONALITY OF THE HANDSETS. FUNCTIONALITY OF THE HANDSETS MAY BE CUSTOMER SPECIFIC OR OPERATOR SPECIFIC OR INDIA SPECIFIC BUT TECHNOLOGY WITH RESPECT TO CDMA CONNECTIVITY, IS A UNIVERSAL TECHNOLOGY AND IS NOT CUSTOMER SPECIFIC. ( I V ) CUSTOMISATION SUCH AS LOCKING THE HANDSET TO ENABLE OPERATION ONLY WITH A SPECIFIC OPERATOR AND OTHER OPERATORS WITH WHOM RECIPROCAL OR OTHER ARRANGEMENTS ARE AVAILABLE, INCLUSION OF HINDI OR OTHER REGIONAL LANGUAGES, CALCULATOR, MUSIC, RING TONES, BROWSERS AND NUMEROUS OTHER FEATURES ARE NO WAY CONNECTED .WITH PATENTS OF QUALCOMM IN THESE 16 AGREEMENTS WHICH ARE FOR MANUFACTURE OF CDMA HANDSETS AND EQUIPMENTS. IN FACT IN EACH HANDSET A NUMBER OF PATENTED TECHNOLOGIES OTHER THAN PATENTS WITH RESPECT TO CDMA CONNECTIVITY ARE ALSO USED. HENC E THE ARGUMENT THAT PATENTS RELATING TO CDMA, TECHNOLOGY ARE CUSTOMER SPECIFIC, SERVICE PROVIDER SPECIFIC OR COUNTRY SPECIFIC IS FACTUALLY INCORRECT. THERE IS NO CUSTOMIZATION OF HANDSET QUA THE CDMA CONNECTIVITY. ( V ) COMING TO THE ARGUMENT THAT HANDSETS ARE PROGRAMMED TO A PARTICULAR NETWORK SERVICE PROVIDER AND HENCE IT IS INDIA SPECIFIC IS NOT TENABLE. AS RIGHTLY POINTED OUT BY MR. DASTUR LOCKING OF A HANDSET TO NETWORK IS A REQUIREMENT OF THE NETWORK SERVICE PROVIDE R DEPENDING UPON ITS BUSINESS PLANS AND EXIGENCIES AND DOES NOT AFFECT THE ABILITY OF THE HANDSET TO OPERATE ON ANY CDMA TELECOM NETWORK, WHICH IS EVIDENT FROM THE FACT THAT ONCE THE NETWORK LOCK IS BROKEN THE HANDSET CAN OPERATE ON ANY NETWORK. THIS FACT IS ALSO SUPPORTED BY THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF ASIFUDDIN ( SUPRA ). HENCE IT CANNOT BE CONCLUDED THAT CDMA TECHNOLOGY WAS SERVICE PROVIDER SPECIFIC. NETWORK LOCKS ARE REQUESTED BY NETWORK SERVICE PROVIDERS TO KEEP THE SUBSCRIBERS WITH THEM FOR AN EXTENDED PERIOD. THERE IS NO DISPUTE THAT THE LOCKED HANDSET IS CAPABLE OF WORKING ANYWHERE IN THE WORLD. THIS IS EVIDENT FROM THE SCHEME ON INTERNATIONAL ROA MING USING CDMA HANDSETS DOWNLOADED FROM THE WEBSITE OF RELIANCE COMMUNICATIONS. FURTHER THERE IS ALSO NO DISPUTE THAT ALL TELECOM OPERATORS PERMIT INTERNATIONAL ROAMING. THOUGH HANDSETS THAT MAY HAVE BEEN PURCHASED UNDER CERTAIN TERMS ARE LOCKED WITH A PA RTICULAR NETWORK SERVICE PROVIDER, THE HANDSET IS CAPABLE OF WORKING IN ANY COUNTRY OF THE WORLD WITH WHICH THAT PARTICULAR NETWORK SERVICE PROVIDER HAS COMMERCIAL UNDERSTANDING. THIS CLEARLY DEMONSTRATES THAT THE CDMA CONNECTIVITY OF THE PHONE IS IN NO MA NNER CONNECTED WITH THE LOCKING OF THE PHONE WITH A NETWORK SERVICE PROVIDER. HENCE, IN OUR VIEW THE PAGE | 38 DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE SYED ASIFUDDIN ( SUPRA ) IS NOT RELEVANT. 144. EVEN OTHERWISE, WE ARE UNABLE TO UNDERSTAND AS TO HOW S ALE OF INDIA SPECIFIC HANDSETS CAN BE A BASIS OF COMING TO THE CONCLUSION THAT THE OEMS ARE CARRYING ON BUSINESS IN INDIA. THERE ARE NUMEROUS PATENTED IPRS BELONGING TO NOT ONLY 'QUALCOMM - BUT ALSO TO A NUMBER OF OTHER PARTIES, AS WELL AS THE OEM'S THEMSEL VES AND ALL THESE PATENTED IPRS ARE USED FOR MANUFACTURING CERTAIN PRODUCTS WHICH ARE SOLD TO PARTIES IN INDIA. THE PURCHASER MAY HAVE THE OPTION TO CHOOSE THE TECHNOLOGIES AVAILABLE OR EVEN SPECIFY CERTAIN ADDITIONAL REQUIREMENTS. SALE OF SUCH CUSTOMISED PRODUCTS BY NO STRETCH OF IMAGINATION CAN BE CONSIDERED AS BUSINESS BEING DONE IN INDIA. A BUYER OF A PRODUCT MAY SPECIFY HIS REQUIREMENTS AND WHEN THE PRODUCT IS MANUFACTURED TO SUCH SPECIFICATION IT DOES NOT TANTAMOUNT TO CARRYING ON BUSINESS IN INDIA. I T DOES NOT CEASE TO BE A SALE OF A PRODUCT. NO SUCH ALLEGATION WAS MADE WITH RESPECT TO NETWORK EQUIPMENT BEING INDIA SPECIFIC. TECHNOLOGY FOR MANUFACTURING PRODUCTS IS DIFFERENT FROM PRODUCTS WHICH ARE MANUFACTURED FROM THE USE OF THE TECHNOLOGY FOR WHICH QUALCOMM HAS PATENTS. THE ROLE OF QUALCOMM ENDS WHEN IT LICENSED ITS PATENTS ON IPRS PERTAINING TO CDMA PRODUCTS FOR MANUFACTURE AND WHEN IT COLLECTS ROYALTY FROM OEMS ON THESE PRODUCTS, WHEN THEY ARC SHIPPED OUT OF THE COUNTRY OF MANUFACTURE. THERE IS NO ACTIVITY FOR QUALCOMM AFTER THIS SALE AND SHIPMENT UNDER THESE 16 AGREEMENTS. FOR THE OEMS IT IS A SALE OF A PRODUCT WHICH IS THE END OF THE ACTIVITY. THE REVENUES ARE GENERATED ON SALE ONLY. THERE ARE NO REVENUES EITHER TO THE OEMS OR TO QUALCOMM AFTER T HE SALE OF THE PRODUCTS. THE SALE IS OF A CHATTEL AS A CHATTEL. THE PRODUCT IS A COMBINATION OF HARDWARE, INTEGRATED CIRCUITS, DESIGNS MULTIPLE APPLICATION SOFTWARE, CDMA COMPONENTS, CHIPSETS WITH EMBEDDED SOFTWARE ETC. THE REVENUE ATTEMPT TO BREAK DOWN TH E SALE INTO VARIOUS COMPONENTS IS NOT SUPPORTED BY THE TERMS OF THE AGREEMENTS AND THE FACTS OF THIS CASE. IT CANNOT BE SAID THAT EVERY ITEM OTHER THAN SOFTWARE WAS SOLD AND THAT SOFTWARE WHICH IS EMBEDDED HAS BEEN SEPARATELY LICENSED. IT IS NOT THE CASE O F THE REVENUE THAT THE OEMS HAVE INCOME IN INDIA FROM THESE SALES OR THAT THEY HAVE INCOME FROM LICENSING OF SOFTWARE IN THESE PRODUCTS WHICH IS ASSESSABLE TO TAX. THERE IS NO FINDING THAT THE OEMS HAVE CARRIED ON BUSINESS IN INDIA MUCH LESS THAT A PART OF THE SALE CONSIDERATION IS ATTRIBUTABLE TO ANY SALE OR LICENSING OF SOFTWARE CARRIED OUT IN INDIA. WHEN OEMS ITSELF ARE NOT BROUGHT TO TAX, TO HOLD THAT QUALCOMM IS TAXABLE IS NOT CORRECT. THIS IS NOT A CASE OF THE OEMS BEING NOT TAXED DUE TO A LAPSE OF TH E OFFICER CONCERNED OR BEING LET OFF BY THE REVENUE BY MISTAKE OR OVERSIGHT. IT IS NOT BROUGHT TO OUR NOTICE THAT THE OEMS HAVE BEEN BROUGHT TO TAX IN ANY OF THE SUBSEQUENT YEARS. THUS THE ARGUMENT THAT TWO WRONGS DO NOT MAKE A RIGHT DOES NOT APPLY TO THE SITUATION ON HAND. 145. REGARDING PASSING OF THE TITLE IN THE EQUIPMENT, THERE IS NO EVIDENCE WITH THE REVENUE, FOR ANY ASSESSMENT YEARS BEFORE US THAT THE TITLE PASSED IN INDIA AND THAT CERTAIN FURTHER ACTIVITY WAS DONE BY THE OEMS IN INDIA AFTER THE SALE . AS ALREADY STATED THE BURDEN IS ON REVENUE TO PROVE THAT BUSINESS PAGE | 39 IS CARRIED ON IN INDIA BY THE OEMS. ARGUMENTS HAVE BEEN MADE WITHOUT THE SUPPORT - OF ANY - DOCUMENT OR EVIDENCE PERTAINING TO THESE YEARS. THE REVENUE CONTENDED THAT THE TITLE IN THE GOODS PA SSED TO TATA AT THE PORT OF DESTINATION I.E. INDIA BASED ON AGREEMENTS OF - 2007. THOUGH THESE DOCUMENTS HAVE NO RELEVANCE FOR THE YEARS UNDER CONSIDERATION, ON A PERUSAL OF THESE 2007 AGREEMENTS WE FIND THAT THERE THERE IS NO CLAUSE IN BOTH THE AGREEMENTS T O SUPPORT THE CONTENTION OF THE REVENUE THAT THE TITLE IN THE GOODS PASSES AT THE 'PORT OF DESTINATION.' CLAUSE 14.1 OF THE AGREEMENT BETWEEN TATA AND ZTE READ AS UNDER 'WITHOUT PREJUDICE TO TTSL'S RIGHT TO REJECT AS SET FORTH IN ART. 6.4 OF THIS AGREEMENT , THE TITLE OF ALL EQUIPMENT SOLD HEREUNDER SHALL PASS FROM THE SUPPLIER TO THE TTSL IN HIGH SEAS BEFORE ARRIVAL IN INDIA AND THE RISK TO LOSS TO THE HARDWARE PORTION OF ALL EQUIPMENT SHALL PASS FROM SUPPLIER TO TTSL UPON PROVISIONAL ACCEPTANCE'. 146. FROM THE ABOVE CLAUSE, IT IS EVIDENT THAT TITLE OF THE EQUIPMENT HAS PASSED TO TATA IN HIGH SEAS BEFORE ARRIVAL IN INDIA. THE FACT THAT THE RISK TO THE EQUIPMENT SHALL PASS ON PROVISIONAL ACCEPTANCE IS NOT RELEVANT FOR DETERMINING WHERE THE TITLE IN THE EQUIPM ENT PASSED, WHICH IN THIS CASE IS CLEARLY OUTSIDE INDIA AS PER THE SPECIFIC UNDERSTANDING OF THE PARTIES. THE PLEA TO INFER OTHERWISE IS TO BE REJECTED AS IT IS AGAINST THE EXPRESS INTENT OF THE PARTIES. 147 IN OUR VIEW THIS ISSUE STANDS COVERED BY THE DEC ISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ERICSSION A.B ( SUPRA ). ERICSSION AND NOKIA'S WAS THE CASE OF THE OEMS WHO ARE INTO SUPPLY OF GSM EQUIPMENT TO INDIAN TELECOM OPERATORS FOR USE IN FIXED/MOBILE GSM TELECOMMUNICATION. THE EQUIPMENT WAS MAN UFACTURED AND SUPPLIED FROM OVERSEAS; INSTALLATION WAS CARRIED OUT BY THEIR RESPECTIVE AFFILIATES IN INDIA. ALONG WITH HARDWARE, PERPETUAL LICENSE WAS GRANTED BY ALL THE THREE COMPANIES FOR USE OF SOFTWARE. SOFTWARE WAS INSEPARABLE AND INTEGRAL PART OF HAR DWARE, WITHOUT WHICH HARDWARE COULD NOT FUNCTION. SIGNIFICANT RESTRICTIONS WERE PLACED ON THE INDIAN TELECOM OPERATORS ON USE OF SOFTWARE (THE INDIAN TELECOM OPERATORS COULD NOT ONWARD SELL THE SOFTWARE INDEPENDENTLY WITHOUT SALE OF THE HARDWARE, ETC.). TH ERE WERE DISTINCT AGREEMENTS WITH AN OVERALL AGREEMENT FOR SUPPLY AND INSTALLATION OF GSM SYSTEMS, THOUGH SPLIT INTO SEPARATE AGREEMENTS, ONE FOR SUPPLY AND THE OTHER FOR INSTALLATION WHICH WAS LEFT TO THE SUBSIDIARIES. THE FACTS OF THIS CASE ARE SIMILAR T O THE FACTS OF THE CASE OF ERICSSON A.B. ( SUPRA ). THE HON'BLE DELHI HIGH COURT HELD AS UNDER : PARA 41. 'WE FIND THAT THE TERMS OF CONTRACT MAKE IT CLEAR THAT ACCEPTANCE TEST IS NOT A MATERIAL EVENT FOR PASSING OF THE TITLE AND RISK IN THE EQUIPMENT SUPPLI ED. IT IS BECAUSE OF THE REASON THAT EVEN IF SUCH TEST FOUND OUT THAT THE SYSTEM DID NOT CONFORM TO THE CONTRACTIVE PARAMETERS, AS PER ART. 21.1 OF THE SUPPLY CONTRACT, THE ONLY CONSEQUENCE WOULD BE THAT THE CELLULAR OPERATOR WOULD BE ENTITLED TO CALL UPON THE ASSESSEE TO CURE THE DEFECT BY REPAIRING OR REPLACING THE DEFECTIVE PART .IF THERE WAS DELAY CAUSED DUE TO PAGE | 40 THE ACCEPTANCE TEST NOT BEING COMPLIED WITH, ART. 19 OF THE SUPPLY CONTRACT PROVIDED FOR DAMAGES. THUS, THE TAXABLE EVENT TOOK PLACE OUTSIDE IND IA WITH THE PASSING OF THE PROPERTY FROM SELLER TO BUYER AND ACCEPTANCE TEST WAS NOT DETERMINATIVE OF THIS FACTOR. THE POSITION MIGHT HAVE BEEN DIFFERENT IF THE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON THE FAILURE OF THE ACCEPTANCE TEST CARRIED OUT I N INDIA. IN SKODA EXPORT ( SUPRA ), THE ANDHRA PRADESH HIGH COURT DEALT WITH THIS ISSUE IN THE FOLLOWING MANNER. 'WE MAY ALSO MENTION THAT LEARNED STANDING COUNSEL FOR THE DEPARTMENT CHALLENGED THE FINDING OF THE TRIBUNAL THAT THE SALE OF MACHINERY WAS COMPL ETED OUTSIDE INDIA. ACCORDING TO HIM, THE SALE WAS COMPLETED ONLY IN INDIA, INASMUCH AS THE ASSESSEE WAS ENTITLED TO AND SATISFY ITSELF ABOUT THE QUALITY AND STANDARD OF THE MACHINERY SUPPLIED. WE DO NOT SEE ANY SUBSTANCE IN THIS CONTENTION. THE VARIOUS CL AUSES IN THE AGREEMENT REFERRED TO ABOVE MAKE IT CLEAR THAT THE SALE OF MACHINERY WAS FOB, EUROPEAN PORT, AND THE TIME OF FULFILMENT OF DELIVERY WAS PRESCRIBED AS THE DATE OF THE BILLS OF LADING. THE PAYMENT WAS ALSO TO BE MADE OUTSIDE INDIA. THE AGREEMENT FURTHER MAKES IT CLEAR THAT THE INSURANCE RISK DURING THE COURSE OF THE JOURNEY WAS THAT OF THE ASSESSEE AND IT PAID FOR THE SAME; EVEN THE FREIGHT CHARGES FROM THE EUROPEAN PORT TO THE PLACE OF DESTINATION WERE PAID BY THE ASSESSEE. THUS, JUDGED FROM ANY ANGLE, THE SALE OF MACHINERY, WHICH ARE 'GOODS' WITHIN THE MEANING OF THE SALE OF GOODS ACT, WAS COMPLETELY OUTSIDE INDIA. A MERE PROVISION IN THE AGREEMENT THAT THE ASSESSEE IS ENTITLED TO SATISFY ITSELF ABOUT THE QUALITY AND STANDARD OF THE MACHINERY IN INDIA CANNOT, IN THE CIRCUMSTANCES OF THIS CASE, DETRACT FROM THE FUNDAMENTAL POSITION THAT THE SALE TOOK PLACE OUTSIDE INDIA. IN SUCH A SITUATION, ONE HAS TO APPLY THE TEST OF PREDOMINANCE AND DECIDE WHERE THE SALE TOOK PLACE ? ON A COMBINED READING OF T HE CLAUSES OF THE AGREEMENT, WE HAVE NO DOUBT THAT THE SALE OF MACHINERY DID TAKE PLACE OUTSIDE INDIA'.' 149. WE WOULD DISCUSS THE PROPOSITIONS LAID DOWN IN THIS CASE IN GREATER DETAIL LATER IN THIS ORDER. 150. COMING TO CL. 14.1 OF THE AGREEMENT BETWEEN TATA AND MOTOROLA IT READS AS UNDER : CLAUSE 14.1 - TITLE AND RISK OF LOSS (PAGE NO. 14) : 'WITHOUT PREJUDICE TO TTSL'S RIGHT TO REJECT AS SET FORTH IN ART. 6.4 OF THIS AGREEMENT, THE TITLE AND THE RISK OF LOSS T O THE HARDWARE PORTION OF ALL EQUIPMENT SOLD HEREUNDER SHALL PASS FROM SUPPLIER TO TTSL UPON DELIVERY IN ACCORDANCE WITH CIP INCOTERMS 2000 PORT OF SHIPMENT.' DELIVERY (PAGE NO. 44) IS DEFINED TO MEAN 'DELIVERY' OR 'DELIVERED' OR 'DELIVERIES' SHALL MEAN TH E PHYSICAL DELIVERY BY THE SUPPLIER, OF THE EQUIPMENT ORDERED BY TTSL ON CIP TERMS (AS DEFINED ABOVE), AT AIRPORTS/SEAPORTS MUTUALLY DESIGNATED BY THE PARTIES. CIP (PAGE NO. 43) : 'CIP' MEANS 'COST, INSURANCE PAID' TO AIRPORT/SEAPORT IN INDIA AS DEFINED IN INCOTERMS 2000. IT MEANS THAT SUPPLIER SHALL PAY AND PAGE | 41 BEAR THE COST OF PACKING/LOADING/UNLOADING, TRANSPORTATION, CARRIAGE, FREIGHT, UNLOADING CHARGES, INSURANCE AND ANY OTHER COST OF ANY NATURE AT ANY TIME PRIOR TO DELIVERY. 151. IT IS THE SUBMISSION OF T HE REVENUE THAT ENTIRE RISK IS BORNE BY MOTOROLA AND THE CARRIAGE, INSURANCE IS PAID TILL THE DELIVERY AT SEAPORTS/AIRPORTS IN INDIA. HENCE, THE SALE CONCLUDES IN INDIA. THE REFERENCE BY THE APPELLANT TO CIP INCOTERMS 2000 DOES NOT ALTER THE SITUATION BECA USE THE EXPRESSION BY ITS VERY DEFINITION IN THE AGREEMENT MEANS OBLIGATION TO BEAR CARRIAGE AND INSURANCE CHARGES UPTO AIRPORTS/SEAPORTS IN INDIA. 152. AT THIS STAGE, WE FIND IT RELEVANT TO EXTRACT THE DEFINITION OF CIP FROM INCOTERMS 2000 : CIP 'CARRIAGE AND INSURANCE PAID TO MEANS THAT THE SELLER DELIVERS THE GOODS TO THE CARRIER NOMINATED BY HIM BUT THE SELLER MUST IN ADDITION PAY THE COST OF CARRIAGE NECESSARY TO BRING THE GOODS TO THE NAMED DESTINATION. THIS MEANS THAT THE BUYER BEARS ALL RISKS AND AN Y ADDITIONAL COSTS OCCURRING AFTER THE GOODS HAVE BEEN SO DELIVERED. HOWEVER, IN CIP THE SELLER ALSO HAS TO PROCURE INSURANCE AGAINST THE BUYER'S RISK OF LOSS OR DAMAGE TO THE GOODS DURING THE CARRIAGE. 'CARRIER' MEANS ANY PERSON WHO, IN A CONTRACT OF CARR IAGE, UNDERTAKES TO PERFORM OR TO PROCURE THE PERFORMANCE, OF TRANSPORT, BY RAIL, ROAD, AIR, SEA, INLAND WATERWAY OR BY A COMBINATION OF SUCH MODES. 'DELIVERY' - THE SELLER MUST DELIVER THE GOODS TO THE CARRIER CONTRACTED IN ACCORDANCE WITH THE CONTRACT OF CARRIAGE OR, IF THERE ARE SUBSEQUENT CARRIERS TO THE FIRST CARRIER, FOR TRANSPORT TO THE AGREED POINT AT THE NAMED PLACE ON THE DATE OR WITHIN THE AGREED PERIOD. . 153. ON CONJOINT READING OF THE AGREEMENT WITH THE - DEFINITIONS FROM INCOTERMS 2000, IT IS V ERY CLEAR THAT THE TITLE AND RISK OF LOSS PASSES TO THE BUYER, ON THE PHYSICAL DELIVERY OF THE EQUIPMENT BY THE OEM TO THE CARRIER, AT THE PORT OF SHIPMENT. THE TERM 'PORT OF SHIPMENT' IS DEFINITELY NOT A PORT IN INDIA.' CIP INEOTERMS - 2000 PROVIDES THAT TH E DELIVERY FROM THE SELLER TO THE BUYER CONCLUDES AT THE PORT OF SHIPMENT UPON DELIVERY TO THE CARRIER. THE OBLIGATION ON MOTOROLA TO BEAR THE COST OF DELIVERY UPTO THE PORT OF DESTINATION (I.E. INDIA) IS IRRELEVANT TO DECIDE WHERE THE TITLE PASSES. THIS I S MERELY A CONTRACTUAL TERM BETWEEN THE PARTIES TO CLARIFY WHO IS TO BEAR THE COST OF TRANSSHIPMENT, INSURANCE ETC. THE ARGUMENT THAT THE CONTRACT HAS TO BE READ AS WHOLE TO ASCERTAIN THE INTENTION OF THE PARTIES AS TO WHEN THE TITLE AND THE RISK PASSED IN GOODS IS DEVOID OF MERIT IN THE PRESENT CASE AS THE AGREEMENT ITSELF IS VERY SPECIFIC AS TO WHEN THE TITLE AND THE RISK WERE TO PASS. 153A AS ALREADY STATED UNDER IDENTICAL FACTS IN THE CASE OF ERICSSON A.B ( SUPRA ) THE DELHI SPECIAL BENCH IN MOTOROLA INC . V. DY. CIT [2005] 95 ITD 269 (DEL.)(SB) HELD THAT THE TITLE OF THE GSM EQUIPMENT PASSED OUTSIDE INDIA. THE ORDER OF THE DELHI SPECIAL BENCH DECISION IN THE CASE OF ERICSSON PAGE | 42 ( SUPRA ) WAS LATTER AFFIRMED BY THE DELHI HIGH COURT IN ERICSSON A.B. ( SUPRA ). REGARDING THE APPLICABILITY OF ERICSSON AND NOKIA RULING, WE ARE UNABLE TO APPRECIATE THE ARGUMENT THAT THE PROPOSITIONS IN THESE JUDGMENTS WOULD NOT BE APPLICABLE TO THE FACTS OF THE PRESENT EASEL TO TAX THE ROYALTY INCOME EARNED BY QUALCOMM, THE REVENUE MUST SHOW THAT THE OEMS HAVE USED QUALCOMM PATENTS FOR A BUSINESS CARRIED ON IN INDIA OR FOR MAKING OR EARNING INCOME FROM A SOURCE IN INDIA, WHICH LEADS TO THE TAXABILITY OF THE OEMS. THEREFORE, T HE TAXABILITY OF QUALCOMM - DIRECTLY DEPENDS ON THE OEMS TAXABILITY IN INDIA. 154. ERICSSON WAS A COMPANY INCORPORATED IN SWEDEN. IT WAS ENGAGED IN THE BUSINESS OF SUPPLY OF HARDWARE AND SOFTWARE. IT ENTERED INTO AN AGREEMENT WITH 10 CELLULAR OPERATORS IN IN DIA FOR SUPPLY OF TELECOMMUNICATION SYSTEMS. THESE WERE INSTALLED AND COMMISSIONED IN INDIA BY TWO SISTER CONCERNS OF ERICSSON, ONE BEING A BRANCH OF NON - RESIDENT GROUP COMPANY, AND THE OTHER BEING RESIDENT COMPANY OF THE SAME GROUP. THERE WAS AN OVERALL A GREEMENT WITH THE OPERATORS FOR SUPPLY AND INSTALLATION OF GSM SYSTEMS. THE SUPPLY OF EQUIPMENT WAS MADE ON CONTINUOUS BASIS. THE SUPPLY HAD TO SATISFY THE ACCEPTANCE TEST. THE ISSUE BEFORE THE COURT WAS THE TAXABILITY OF SUCH SUPPLIES IN RESPECT OF WHICH TITLE AND RISK IN THE GOODS PASSED TO THE CUSTOMERS BEFORE THE GOODS WERE DELIVERED IN INDIA. THE AO HELD THAT THE ASSESSEE COMPANY HAD A BUSINESS CONNECTION UNDER DOMESTIC LAW AND THAT IT HAD A PE UNDER THE DTAA BETWEEN INDIA AND SWEDEN. BUSINESS PROFITS WERE ESTIMATED. ENTIRE CONSIDERATION FOR SUPPLY OF SOFTWARE WAS BROUGHT TO TAX. INCOME FROM HARDWARE WAS ESTIMATED AT 26 PER CENT OF THE BILLED SUPPLIES OF HARDWARE. THE HON'BLE HIGH COURT HELD THAT: ( A ) THE TITLE IN THE GOODS PASSED TO THE BUYER BEFORE THE GOODS REACHED THE INDIAN SHORES AND HENCE NO PROFIT COULD ACCRUE TO THE NON - RESIDENT. SEC. 19 OF THE SALE OF THE GOODS ACT WOULD HAVE APPLICATION. ( B ) THE FACT THAT THE CONTRACT ITSELF IS SIGNED IN INDIA OR THAT THE FREIGHT CHARGES ARE BORNE BY THE IMPORTER WOULD MAKE NO DIFFERENCE TO THE INFERENCE AS WAS POINTED OUT BY THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF ADDL. CIT V. SKODA EXPORTS . ( C ) THE FACT THAT THE INSURANCE RISK WAS WITH THE SUPPLIER BEFORE LANDING DOES NOT ALTER THE SITUAT ION. ( D ) ACCEPTANCE TEST CANNOT ALSO LEAD TO A DIFFERENT CONCLUSION AS IT WAS MEANT FOR ENSURING THAT THE SUPPLY CONFORMS TO THE CONTRACT PARAMETERS. ( E THE RIGHT TO GET BACK THE GOODS AFTER LANDING, IF THE IMPORTER DOES NOT TAKE DELIVERY FOR WHATEVER REASON, COULD ALSO MAKE PAGE | 43 ) NO DIFFERENCE SINCE THE TITLE HAS PASSED TO THE BUYER BEFORE LANDING. ( F ) SINCE THE INSTALLATION WAS ALSO NOT UNDERTAKEN BY THE ASSESSEE COMPANY, NO INCOME THEREFROM CAN BE BROUGHT TO TAX. ( G ) THE ISSUE WHETHER THE AS SESSEE HAD A PE IN INDIA DURING THE YEAR IS ACADEMIC IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAS NO BUSINESS CONNECTION. ( H ) THAT SINCE SOFTWARE IS LOADED ON THE HARDWARE IN TERMS OF CONTRACT, IT DID NOT HAVE ANY INDEPENDENT EXISTENCE, SO AS TO JUSTIFY THE INFERENCE THAT THERE HAS BEEN SUPPLY OF SOFTWARE. ( I ) THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES V. STATE OF A.P. [2004] 192 CTR (SC) 257 MAKING A DISTINCTION BETWEEN ASSIGNMENT OF 'COPYRIGHT RIGHT' AND SALE OF 'COPYRIGHTED PRODUCT' COULD NOT BE DISREGARDED. ( J ) COMPUTER PROGRAMMES ARE GOODS AND MERELY BECAUSE THE SOFTWARE WAS UNLOADED FROM DUMB CD FROM THE COMPUTER, USABLE ONLY WHEN IT IS ACTIVATED, IT DOES NOT CEASE TO BE GOODS. ( K ) THE PAYMENT TO THE ASSESSEE CANNOT BE SPLIT UP AS BETWEEN SUPPLY AND ROYALTY/TECHNICAL FEES. ( L ) THERE IS NO ASSIGNMENT OF ANY COPYRIGHT IN THE FACTS OF THE CASE, IN THE SENSE CONTEMPLATED UNDER SEC. 14 OF THE COPYRIGHTS ACT, 1957 AS A CONSEQUENCE OF EITHER THE OVERALL AGREEMENT OR THE SUPPLY CONTRACT. ( M ) THE DIFFERENCE BETWEEN ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED PRODUCT' WAS POINTED OUT. 155. IN THE CASE OF NOKIA NETWORKS ( SUPRA ) THE RELEVANT FACTS ARE: THE ASSESSEE, A COMPANY INCORPORATED UNDER THE LAWS OF FINLAND, WAS A LEADING MANUFACTURER OF ADVANCED TELECOMMUNICATION SYSTEMS AND EQUIPMENT (GSM EQUIPMENT), WHICH WERE USED IN FIXED AND MOBILE PHONE NETWORKS. DURING THE PREVIOU S YEARS, THE ASSESSEE MAINTAINED A LO AND ALSO HAD A SUBSIDIARY IN INDIA, KNOWN AS, NOKIA INDIA (P.) LTD. (NIPL). ITS ACTIVITIES INVOLVED SUPPLY OF HARDWARE AND SOFTWARE AS WELL AS INSTALLATION AND COMMISSIONING AND ALSO AFTER SALE SERVICES. IT ENTERED INT O AGREEMENTS WITH VARIOUS INDIAN TELECOM/CELLULAR OPERATORS AND ENTERED INTO THREE CONTRACTS WITH THEM, NAMELY, (1) OVERALL AGREEMENT, (2) SUPPLY AGREEMENT AND (3) INSTALLATION AGREEMENT. THE ASSESSEE SUPPLIED GSM EQUIPMENT, I.E. BOTH HARDWARE AND PAGE | 44 SOFTWARE MANUFACTURED IN FINLAND TO INDIAN TELECOM OPERATORS FROM OUTSIDE INDIA ON A PRINCIPAL TO PRINCIPAL BASIS UNDER INDEPENDENT BUYER/SELLER ARRANGEMENTS. INSTALLATION ACTIVITIES WERE UNDERTAKEN BY NIPL UNDER ITS INDEPENDENT CONTRACTS WITH INDIAN TELECOM OPERA TORS. THE AO HELD THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN INDIA THROUGH A PE. BOTH THE LO AND NIPL CONSTITUTED A PE OF THE ASSESSEE IN INDIA. 70 PER CENT OF THE TOTAL EQUIPMENT REVENUE ATTRIBUTED TO SALE OF HARDWARE. THE REMAINING 30 PER CENT OF THE EQUIPMENT REVENUE ATTRIBUTED TOWARDS SUPPLY OF SOFTWARE AND THE SAME WAS TAXED AS ROYALTY BOTH UNDER SEC. 9(L)(VI) AND UNDER ART. 12 OF DTAA BETWEEN INDIA AND FINLAND HOLDING THAT SOFTWARE WAS NOT SOLD BUT LICENSED TO THE INDIAN TELECOM OPERATORS. THE HON' BLE HIGH COURT HELD AS FOLLOWS : ( A ) IF SUPPLY AGREEMENT IS TAKEN AS A STANDALONE AGREEMENT, THE PROPERTY IN THE GOODS PASSES TO THE BUYER OUTSIDE INDIA AND HENCE NOT TAXABLE IN INDIA. ( B ) SEC. 19 OF THE SALE OF GOODS ACT, 1930 MAKES IT CLEAR THAT PROPERTY IN THE GOODS PASSES WHEN THE PARTIES INTEND IT TO PASS. THE INTENTION OF THE PARTIES IS MANIFEST IN ART. 13 OF THE SUPPLY CONTRACT/AND PROVISIONS OF ART. 15 IN NO MANNER MILITATE AGAINST SUCH INTENTION. THERE IS NOTHING IN THE CONDUCT OF THE PARTI ES, WHICH WOULD SUGGEST THAT THE EXPRESS PROVISION OF ART. 13 HAVE BEEN GIVEN A GO BY. ( C ) THE FACT THAT THE SUPPLY CONTRACT WAS SIGNED IN INDIA DOES NOT CHANGE THE CIRCUMSTANCE. ACCEPTANCE TEST, WHICH WAS PERFORMED IN INDIA, IS NOT A RELEVANT CIRCUMSTA NCE FOR DETERMINING AS TO WHETHER INCOME HAS ACCRUED IN INDIA. ACCEPTANCE TEST IS NOT MATERIAL EVEN FOR PASSING OF TITLE AND RISK IN THE EQUIPMENT SUPPLIED. ( D ) THE SUBMISSION OF THE REVENUE THAT THE /THREE AGREEMENTS, NAMELY OVERALL AGREEMENT, SUPPLY A GREEMENT AND INSTALLATION AGREEMENT, ARE TO BE TAKEN TO FORM AN INTEGRATED BUSINESS ARRANGEMENT BETWEEN THE PARTIES WHICH WAS GOVERNED BY THE OVERALL AGREEMENT PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD ENTERED INTO CONTRACTS WITH CELLULAR OPERATORS IN I NDIA FOR SETTING UP OF GSM SYSTEM IN INDIA, THE HARDWARE AND SOFTWARE FOR WHICH WERE SUPPLIED BY THE ASSESSEE, AND THE INSTALLATION THEREOF WAS ALSO OVERSEEN BY THE ASSESSEE. WHO WAS TO ENSURE THAT IT WAS CARRIED OUT TO THE SATISFACTION OF INDIAN BUYERS IN ACCORDANCE WITH THE TERMS OF THE CONTRACT. THIS WAS ALSO CONSIDERED BY THE COURT AND IT WAS HELD THAT THE TAXABLE EVENT TOOK PLACE OUTSIDE INDIA WITH THE PASSING OF THE PROPERTY FROM SELLER TO BUYER. PAGE | 45 ( E ) THE DECISION MIGHT HAVE BEEN DIFFERENT IF THE BUYER HAD THE RIGHT TO REJECT THE EQUIPMENT ON FAILURE OF ACCEPTANCE TEST. ( F ) THE OVERALL AGREEMENT DOES NOT RESULT IN THE INCOME ACCRUING IN INDIA. THE EXECUTION OF THE OVERALL AGREEMENT IS PROMPTED BY PURE COMMERCIAL CONSIDERATIONS. ( G ) BOARD INSTRUCTION NO. 1829, DT. 29TH JAN., 1989 MUST CONTINUE TO GOVERN THE ASSESSMENT FOR THE RELEVANT YEARS, DESPITE WITHDRAWAL OF THIS INSTRUCTION BY CBDT BY VIRTUE OF CIRCULAR NO. 7 OF 2008 (SIC - OF 2009), DT. 22ND OCT.. 2009 [(2009) 226 CTR (ST) 57]. ( H ) THE PLACE OF NEGOTIATION, THE PLACE OF SIGNING OF AGREEMENT, OR FORMAL ACCEPTANCE THEREOF OR OVERALL RESPONSIBILITY OF THE ASSESSEE ARE IRRELEVANT CIRCUMSTANCES AS THE TRANSACTION RELATES TO THE SALE OF GOODS AND THE RELEVANT FACTOR AND DETERMINATING FACTO R WOULD BE AS TO WHERE THE PROPERTY IN THE GOODS PASSES. IN THE INSTANT CASE THE PROPERTY PASSED ON THE HIGH SEAS. ( I ) EVEN IF IT IS A CASE OF A COMPOSITE CONTRACT, THE SUPPLY HAS TO BE SEGREGATED FROM THE INSTALLATION AND ONLY THEN THE QUESTION OF APPORTIONMENT WOULD ARISE. ( J ) THAT THE AMENDMENT TO SEC. 9 VIDE FINANCE ACT, 2012 WHEREIN EXPLNS. IV, V AND VI HAVE BEEN ADDED TO S. 9 SEEKING TO CLARIFY THE SCOPE OF CL. (VI) OF SUB - SEC. (1) OF SEC. 9, IT WAS HELD THAT THE AMENDMENT CANNOT BE READ IN TO THE TREATY. ( K ) THE REASONING GIVEN IN ERICSSON A.B.'S CASE (SUPRA) WOULD APPLY TO NOKIA NET WORK OY. 156. IN THE FACTS OF THE PRESENT CASE, MOTOROLA AND ZTE ARE OEMS SUPPLYING CDMA EQUIPMENT TO THE TATA AN INDIAN TELECOM OPERATOR. THEIR BUSINESS MO DEL AND SUPPLY CONTRACT FOR CDMA EQUIPMENT IS SIMILAR TO THE SUPPLY CONTRACT ENTERED BY THE ERICSSON AND NOKIA FOR SUPPLY OF GSM EQUIPMENT. HENCE, WE ARE OF THE VIEW THAT THE PROPOSITIONS LAID BY THE HON'BLE DELHI HIGH COURT WITH RESPECT TO TAXABILITY OF G SM EQUIPMENT WITH EMBEDDED SOFTWARE WOULD BE SQUARELY APPLICABLE TO TAXABILITY OF OEMS SUPPLYING CDMA HANDSETS AND EQUIPMENT. 157. APPLYING THESE PRINCIPLES LAID DOWN IN ERICSSON'S CASE (SUPRA), TO THE FACTS OF THE CASE ON HAND WE HAVE TO HOLD THAT THE TITLE IN THE GOODS IN THIS CASE HAS PASSED OUTSIDE INDIA AS PER THE CLAUSES IN THE AGREEMENT. WHEN READ WITH CIP INCOTERMS 2000. PAGE | 46 158. EVEN OTHERWISE MERE PASSING OF TITLE IN GOODS IMPORTED INTO INDIA, IN INDIA, AT THE PORT OF DESTINATION CANNOT LEAD TO A CONCLUSION THAT THE OEMS CARRY ON BUSINESS IN INDIA. IT IS BUSINESS WITH INDIA AND NOT BUSINESS IN INDIA. THE MERE PASSING OF THE TITL E WITH NO OTHER ACTIVITY DOES NOT RESULT IN ANY INCOME BEING ATTRIBUTABLE IN INDIA. 159. FOR ALL AFORESAID REASONS, WE UPHOLD THE ARGUMENTS OF SHRI SOLI DASTUR, THE LEARNED SENIOR COUNSEL, THAT OEMS HAVE NOT CARRIED ON BUSINESS IN INDIA, AND THAT THE OEMS CANNOT BE SAID TO HAVE USED QUALCOMM PATENTS FOR THE PURPOSE OF SUCH BUSINESS IN INDIA . 160. BEFORE WE COME TO THE SECOND LIMB OF ARGUMENT, WE AGREE WITH THE ARGUMENT OF MR. DASTUR THAT : LIMB (I) COVERS CASES WHERE THE RIGHT PROPERTY OR INFORMATION HAS BE EN USED BY THE NON - RESIDENT PAYER (OEM) ITSELF AND IS SO USED IN A BUSINESS CARRIED ON BY OEMS IN INDIA. LIMB (II) COVERS A CASE WHERE THE RIGHT PROPERTY OR INFORMATION HAS NOT BEEN USED BY THE NON - RESIDENT PAYER (OEM) ITSELF IN THE BUSINESS CARRIED ON BY IT, BUT THE RIGHT PROPERTY OR INFORMATION HAS BEEN DEALT WITH IN SUCH A MANNER AS WOULD RESULT IN EARNING OR MAKING INCOME FROM A SOURCE IN INDIA. ANY OTHER INTERPRETATION TO OUR MIND WOULD NOT BE HARMONIOUS, AS IT WOULD MAKE LIMB (I) OTIOSE. 161. NOW WE C OME TO THE SECOND LIMB OF THE ISSUE THAT IS, WHETHER THE OEMS HAVE USED QUALCOMM'S PATENTS FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM A SOURCE IN INDIA. THE REVENUE ONCE AGAIN HEAVILY RELIED ON THE CDMA EQUIPMENT PURCHASE AGREEMENT BETWEEN TATA AND Z TE AND TATA AND MOTOROLA TO DEMONSTRATE THAT OEMS HAVE USED THE QUALCOMM'S PATENTS FOR THE PURPOSE OF MAKING OR EARNIN G INCOME FROM A SOURCE IN INDIA ON THE BASIS OF THE EQUIPMENT PURCHASE AGREEMENT OF 2007, IT WAS SUBMITTED THAT THE TWO AGREEMENTS BETWEEN INDIAN OPERATORS AND OEMS MAKE A DISTINCTION BETWEEN SALE OF EQUIPMENT AND LICENSING OF SOFTWARE EMBEDDED IN THE FIRMWARE. IT WAS SUBMITTED THAT INDIAN OPERATORS HAVE AGREED TO PURCHASE THE EQUIPMENT AND TAKE LICENSES FOR THE SOFTWARE. IN ADDITION, THE RE VENUE HAS ALSO CONTENDED THAT INDIAN OPERATORS CONSTITUTE A SOURCE OF INCOME FOR THE OEMS IN INDIA. 162. RELIANCE WAS PLACED ON CL. 19.5 OF THE AGREEMENT WITH ZTE DT. 19TH DEC. 2007, WHEREIN IT IS RECORDED THAT ALL LICENSED MATERIAL ARE THE PROPERTY OL THE SUPPLIER OF ITS SUPPLIERS. HENCE IT IS ARGUED THAT THE SUPPLIER OF OEMS IS QUALCOMM WHICH SUPPLIED THE INTELLECTUAL PROPERTY TO BE USED UNDER LICENSE FOR MANUFACTURING OF HANDSETS/EQUIPMENT. IT WAS FURTHER SUBMITTED THAT THE AGREEMENT BETWEEN QUALCOMM AND THE OEMS, WHICH WAS THE BASIS FOR THE AO TO ASSESS THE INCOME, STATES IN THE PREAMBLE THAT OEMS DESIRED TO OBTAIN LICENSES OF QUALCOMM'S INTELLECTUAL PROPERTY TO MANUFACTURE AND SELL SUBSCRIBER UNITS. PAGE | 47 163. RELIANCE WAS PLACED ON THE DEFINITION OF THE TERM 'CHIP SETS' IN THE AGREEMENT, AS WELL AS OTHER DEFINITIONS SUCH AS 'CDMA, ASIC' AND IT WAS ARGUED THAT OEMS HAVE GIVEN LICENSE TO USE CHIP SETS/ASICS PURCHASED FROM QUALCOMM IN MANUFACTURING THE HANDSETS/EQUIPMENT. IT WAS ARGUED THAT CDMA TECHNOLOGY' BELO NGING TO QUALCOMM IS EMBEDDED IN CHIP SETS WHICH ARE USED BY THE OEMS AND LICENSED TO INDIAN CUSTOMERS FOR FURTHER USE BY THEM. HE FURTHER SUBMITTED THAT, IF THIS BASIC PROPOSITION IS UNDER DISPUTE, RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT HE S UBMITTED THAT THE MATTER NEEDS A MORE CRITICAL EXAMINATION BY SOMEONE WHO UNDERSTANDS CDMA TECHNOLOGY. 164. CLAUSE 5.1 OF THE LICENSE AGREEMENT IS RELIED UPON AND IT IS POINTED OUT THAT QUALCOMM HAS GRANTED WORLDWIDE LICENSES UNDER QUALCOMM'S INTELLECTUAL PROPERTY TO MAKE, IMPORT, USE, SELL OR LEASE OR OTHERWISE DISPOSE OF SUBSCRIBER UNITS AND TO MAKE COMPONENTS AND USE AND SELL SUCH COMPONENTS AND HENCE IT IS ONLY SOFTWARE THAT WAS LICENSED BY QUALCOMM TO OEMS. IT WAS FURTHER CONTENDED THAT INTELLECTUAL PR OPERTY CANNOT BE ANYTHING OTHER THAN CHIP SETS OR SOME OTHER SOFTWARE GOING TO BE EMBEDDED IN THE HANDSETS/EQUIPMENT. 165. RELIANCE WAS ALSO PLACED ON FINANCE ACT, 2012 WHEREIN EXPLN. IV TO SEC. 9(1)(VI) HAS BEEN INSERTED. IT WAS SUBMITTED THAT THE ARGUMEN T THAT OEM SELL COPYRIGHTED ARTICLE OR THING AND THE ARGUMENT THAT THEY DO NOT GIVE ANY RIGHT IN THE COPYRIGHT, IS OF NO CONSEQUENCE POST THIS AMENDMENT AS THE TRANSFER OF ANY RIGHTS IN AN INTELLECTUAL PROPERTY INCLUDES TRANSFER OF ANY RIGHT TO USE OF A CO MPUTER SOFTWARE IRRESPECTIVE OF THE MEDIUM THROUGH WHICH IT IS TRANSFERRED. 166. IN A NUTSHELL THE SUBMISSIONS OF THE REVENUE ARE THAT QUALCOMM HAS MADE AVAILABLE TO THE OEMS ITS PATENTED INTELLECTUAL PROPERTY RELATING TO CDMA TECHNOLOGY IN THE FORM OF CHI P SETS/ASIC AND THAT OEMS HAVE INSERTED THESE CHIP SETS INTO THE HANDSETS/NETWORK EQUIPMENT MANUFACTURED BY THEM AND THAT THESE IN TURN HAVE BEEN LICENSED TO INDIAN OPERATORS FOR WHICH OEMS HAVE RECEIVED A CONSIDERATION AND HENCE THEY HAVE A SOURCE OF INCO ME IN INDIA. 167. (THESE ARGUMENTS OF THE REVENUE ARE IN OUR VIEW NOT ACCEPTABLE FOR THE FOLLOWING REASONS : I. THE AO ASSESSED THE ROYALTY ARISING FROM LICENSING OF CDMA PATENTS BY QUALCOMM TO OEMS. THE ROYALTY WHICH IS BROUGHT TO TAX BY THE AO DOES NOT REFE R TO ANY SOFTWARE BEING PROVIDED. IT IS NOT DEMONSTRATED BY THE REVENUE THAT THE SOFTWARE IS PROVIDED AS PART OF THE LICENSING OF QUALCOMM PATENTS. II. THE SOFTWARE EMBEDDED IN THE HARDWARE SOLD TO INDIAN CARRIERS BY THE OEMS BELONG TO THE OEMS. THE SOFTWARE MAY HAVE BEEN SELF - GENERATED OR PROCURED BY THE OEMS. PAGE | 48 III. NONE OF THE 16 AGREEMENTS BETWEEN QUALCOMM AND OEMS WHICH FORM THE BASIS FOR ASSESSMENT IN THESE CASES, REFER TO LICENSING OF SOFTWARE. THUS TO ARGUE THAT SOFTWARE IS LICENSED BY QUALCOMM TO OEMS AND W HICH ARE IN TURN SUB - LICENSED TO THE INDIAN CARRIERS IS CONTRARY' TO THE FACTS OF THE CASE. THE SOFTWARE WHICH IS LICENSED AT BEST RELATES TO THE FUNCTIONALITY ASPECT OF THE PRODUCT AND HAS NOTHING TO DO WITH THE CAPABILITY TO PROVIDE CDMA CONNECTIVITY. 1 68. THE REVENUE FOR THE FIRST TIME BEFORE THE TRIBUNAL ARGUED THAT CHIPSETS ARE PURCHASED BY OEMS FROM QUALCOMM AND THESE CHIPSETS WHICH HAVE EMBEDDED SOFTWARE AND HELP IN FUNCTION OF THE HARDWARES. THIS IS NOT THE BASIS ON WHICH EITHER THE AO OR THE CIT(A ) PROCEEDED TO TAX IN THIS CASE. 169. IT IS NOT NECESSARY FOR THE OEMS TO PURCHASE CHIPSETS FROM QUALCOMM ONLY. THE OEMS CAN ALSO PURCHASE THE CHIPSETS FROM A THIRD PARTY OTHER THAN QUALCOMM. IN FACT, THE AO IN HIS ASSESSMENT ORDER HAD SPECIFICALLY HELD THAT THE INCOME, OF QCT DIVISION FROM T HE SALE OF CHIPSETS IS NOT ASSESSABLE AND THAT THE ASSESSMENT IS CONFINED TO THE INCOME RECEIVED BY QTL DIVISION I.E. THE BUSINESS SEGMENT OF QUALCOMM WHICH IS INVOLVED IN LICENSING OF THE PATENTS TO MANUFACTURE THE PRODUCTS. WE EMPHASISE THAT WHAT IS BROU GHT TO TAX IS THE ROYALTY EARNED FROM THE LICENSING OF PATENTS AND NOT ROYALTY EARNED ON SOFTWARE EMBEDDED IN THE CHIPSETS. 170. REGARDING THE REQUEST MADE BY THE REVENUE FOR REMAND OF THE CASE OR EXAMINATION BY A TECHNICAL EXPERT, WE DO NOT FIND IT NECESSARY AT THIS STAGE AS THERE IS NO DISPUTE THAT THE SOFTWARE IS EMBEDDED IN THE CHIPSET HE SAME IS INSTALLED IN THE CDMA EQUIPMENT. SELLING OF THE CHIPSETS IS A PART OF APPELLANT'S QCT DIVISION ACTIVITY AND WHAT IS BROUGHT TO TAX BY THE AO IS THE INCOM E OF QTL DIVISION . 171. EVEN OTHERWISE THE SOFTWARE IS EMBEDDED IN THE CHIPSET AND IS AN INTEGRAL PART OF THE CHIPSET. FURTHER, THE CHIPSET IS EMBEDDED IN THE HANDSET/EQUIPMENT AND THESE ARE SOLD OUTSIDE INDIA. FURTHER, THE TOTAL PRICE IS FIXED FOR THE EQU IPMENT AS A WHOLE AND THERE IS NO SEPARATE CONSIDERATION FOR THE LICENSED MATERIAL. 172. CLAUSE 19 OF BOTH THE AGREEMENTS WHICH DEALS WITH PROVISIONS APPLICABLE TO LICENSED MATERIALS PLACES SIGNIFICANT RESTRICTIONS (LISTED BELOW) ON TATA FOR USE OF THE LIC ENSED MATERIAL I. THE OBJECT CODE VERSION OF THE SOFTWARE AND RELATED DOCUMENTATION COULD ONLY BE USED ALONG WITH THE EQUIPMENT; II. TATA HAS NO RIGHT TO SELL OR SUB - LICENSE THE LICENSED MATERIALS OR MODIFY, DECOMPILE OR DISASSEMBLE THE SOFTWARE FURNISHED AS OB JECT CODE TO GENERATE THE CORRESPONDING SOURCE CODE (PART OF FIRMWARE ) EMBEDDED IN THE EQUIPMENT; III. TATA SHALL HOLD THE LICENSED MATERIALS IN CONFIDENCE AND SHALL PAGE | 49 NOT, WITHOUT MOTOROLA AND ZTE'S CONSENT, DISCLOSE, PROVIDE OR OTHERWISE MAKE AVAILABLE, IN WH OLE OR IN PART, ANY LICENSED MATERIAL TO ANYONE, EXCEPT TO ITS EMPLOYEES HAVING A NEED - TO - KNOW. TATA SHALL NOT COPY SOFTWARE' EMBODIED IN THE FIRMWARE. IV. TATA IS OBLIGATED TO RETURN ALL COPIES OF THE LICENSED MATERIALS TO MOTOROLA AND ZTE WHEN THE LICENSED MATERIALS ARE NO LONGER NEEDED BY TATA OR IF TATA'S LICENSE IN RESPECT THEREOF IS CANCELLED OR TERMINATED BY THE SUPPLIER. V. FURTHER, EQUIPMENT HAS BEEN DEFINED UNDER THE AGREEMENT TO MEAN AND INCLUDE CERTAIN CDMA EQUIPMENT, INCLUDING BUT NOT LIMITED TO THE HARDWARE, THE SOFTWARE, THE FIRMWARE, THE LICENSED MATERIAL, AND PARTS THEREOF AND RELATED SPARES TO BE SUPPLIED BY THE SUPPLIER TO TATA UNDER THE AGREEMENT. VI. FURTHER FIRMWARE AND SOFTWARE HAVE, BEEN DEFINED IN THE AGREEMENTS AS UNDER : 'FIRMWARE' SHALL MEAN A COMBINATION OF HARDWARE AND SOFTWARE REPRESENTED BY A PATTERN OF BITS CONTAINED IN SUCH HARDWARE. 'SOFTWARE' SHALL MEAN A SET OF MAN AND MACHINE READABLE INSTRUCTIONS ON MAGNETIC OR OTHER APPROPRIATE MEDIA, INCLUDING FIRMWARE, WHICH IS NECESSARY FOR THE CONTROL, OPERATION AND PERFORMANCE OF THE EQUIPMENT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SPECIFICATION CONTAINED IN THE AGREEMENT. 173. IN VIEW OF THE SPECIFIC CLAUSES IN THE AGREEMENT, IT IS CLEAR THAT THE SOFTWARE DOES NOT HAVE AN INDEPENDENT USE AND IS AN INTEGRAL PART OF THE HARDWARE WITHOUT WHICH THE HARDWARE CANNOT FUNCTION. THE SOFTWARE SUPPLIED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRIGHT RIGHT. 174. APPLYING THE PROPOSITIONS LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON (SUPRA), NOKIA (SUPRA) THE INCOME FROM EMBEDDED SOFTWARE CANNOT BE TAXED IN INDIA. THE SOFTWARE IS ONLY USED WITH THE HARDWARE AND IS NOT IND EPENDENT OF THE EQUIPMENT OR THE CHIPSET. FURTHER, NO SEPARATE CONSIDERATION IS PAID BY TATA FOR LICENSING OF THE SOFTWARE UNDER THE EQUIPMENT PURCHASE AGREEMENT CONSIDERATION IS PAID ONLY FOR THE EQUIPMENT WHICH HAS NUMEROUS PATENTED TECHNOLOGIES, CHIPSET S AND SOFTWARE WHICH ENABLES THE HARDWARE TO FUNCTION. THE SALE CANNOT BE BIFURCATED OR BROKEN - DOWN INTO DIFFERENT COMPONENTS. 175. UNDER THE 16 LICENSED AGREEMENTS BETWEEN QUALCOMM AND THE OEM WHICH IS THE BASIS FOR THE AO AS WELL AS THE CIT(A) TO RAISE A DEMAND, WHAT IS LICENSED IS THE RIGHT TO MANUFACTURE 'SUBSCRIBER UNITS'. UNDER THESE AGREEMENTS SUBSCRIBER UNIT IS DEFINED AS 'COMPLETE CDMA TELEPHONE OF PAGE | 50 WHICH CHIPSET IS ONLY ONE PART'. HENCE THE ARGUMENT OF THE REVENUE IS DEVOID OF MERIT. 176. COMING TO THE ARGUMENT THAT THE INDIAN TELECOM OPERATORS IN INDIA CONSTITUTE A SOURCE FOR THE OEMS, THE PRIVY COUNCIL IN THE CASE OF RHODESIA METALS LTD. ( SUPRA ) AND THE JURISDICTIONAL HIGH COURT IN THE CASE OF HAVELLS INDIA LTD. ( SUPRA ) HAVE LAID DOWN THAT THE SOURCE IS THE ACTIVITY THAT GIVES RISE TO INCOME. IN THE PRESENT CASE, THE RIGHT PROPERTY OR INFORMATION LICENSED TO OEMS RELATES TO THE MANUFACTURE OF THE PRODUCTS AND HENCE THE SOURCE OF ROYALTY IS THE ACTIVITY OF MANUFACTURING. THOUGH CITED BY THE REVEN UE, RHODESIA METALS (SUPRA) IN OUR VIEW ENTIRELY SUPPORTS THE APPELLANT'S CASE. IN THAT CASE RHODESIA METALS LTD. CARRIED ON THE BUSINESS OF DEVELOPING MINES IN SOUTHERN RHODESIA AND THEN SELLING RIGHTS THEREIN. THE HEAD SEAT AND DIRECTING POWER OF THE COM PANY WAS SITUATED IN ENGLAND, THE CONTRACTS OF PURCHASE AND SALE OF THE MINING RIGHTS WERE ENTERED INTO IN ENGLAND AND THE CONSIDERATION FOR SALE OF THE MINING RIGHTS WAS RECEIVED IN ENGLAND (PARA 2 AT P. 50 OF THE ORDER). DESPITE ALL THIS, THE PRIVY COUNC IL UPHELD THE CONTENTION OF THE COMPANY THAT THE AMOUNT EARNED ON SALE OF SUCH MINING RIGHTS WAS NOT CHARGEABLE TO TAX IN ENGLAND SINCE THE SOURCE OF INCOME WAS THE DEVELOPMENT OF THE MINES, WHICH ACTIVITY WAS CARRIED OUT IN SOUTHERN RHODESIA APPLYING THIS PRINCIPLE TO THE FACTS OF THE CASE AT HANDS IT BECOMES CLEAR THAT THE SOURCE OF THE ROYALTY IS THE PLACE WHERE PATENT (RIGHT PROPERTY OR INFORMATION) IS EXPLOITED, VIZ. WHERE THE MANUFACTURING ACTIVITY TAKES PLACE, WHICH IS OUTSIDE INDIA. HENCE, WE ARE UN ABLE TO ACCEPT THE CONTENTION THAT INDIAN TELECOM OPERATORS WOULD CONSTITUTE SOURCE OF INCOME FOR THE OEMS. 177. COMING TO THE INSERTION OF EXPLN. 4 TO SEC. 9(L)(VI) OF THE ACT, WE FIND THAT THE AMENDMENT HAS NO EFFECT IN THE PRESENT CASE AS THE CONTROVERS Y IN THIS CASE IS TAXABILITY OF ROYALTY ON PATENTS RELATING TO INTELLECTUAL PROPERTY FOR MANUFACTURE OF CDMA HANDSETS AND EQUIPMENT AND DOES NOT RELATE TO ROYALTY ON LICENSING OF ANY COMPUTER SOFTWARE. THE OEMS RECEIVED NO INCOME FROM LICENSING IN COMPUTER SOFTWARE. THE OEMS SELL HANDSETS/EQUIPMENTS TO THE SERVICE PROVIDERS, OUTSIDE INDIA AND HENCE THE OEMS HAVE NO SOURCE OF INCOME IN INDIA. 178. THUS, FOR ALL THESE REASONS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE WAS RIGHT IN HIS ARGUMENT THAT T HE REVENUE HAS NOT PROVED THAT THE OEMS HAVE CARRIED ON THE BUSINESS IN INDIA AND THAT THEY HAVE USED QUALCOMM'S PATENTS FOR CARRYING ON SUCH BUSINESS IN INDIA NOR THE REVENUE HAS PROVED THAT THE OEMS HAVE USED QUALCOMM'S PATENTS FOR THE PURPOSE OF MAKING/ EARNING INCOME FROM A SOURCE IN INDIA. THUS WE HOLD THAT THE ROYALTY IN QUESTION CANNOT BE BROUGHT TO TAX UNDER SEC. 9(1)(VI) (C) OF THE ACT. 179. THE NEXT ISSUE IS WHETHER THE ROYALTY PAID TO QUALCOMM BY OEMS CAN BE TAXED IN INDIA UNDER ART. 12(7)(B) OF T HE DTAA BETWEEN INDIA AND USA. PAGE | 51 180. AS WE HAVE HELD THAT THE ROYALTY IN QUESTION CANNOT BE BROUGHT TO TAX UNDER THE IT ACT. 1961, WE NEED NOT GO INTO THE QUESTION OF APPLICABILITY UNDER DTAA BETWEEN INDIA AND USA AS IT WOULD BE AN ACADEMIC EXERCISE. 181. B EFORE WE PART, WE OBSERVE THAT THE REVENUE IN ITS EFFORT TO SUPPORT THE ORDER OF THE AO AS WELL AS THE CIT(A) BROUGHT IN AGREEMENTS ENTERED INTO BY TATA IN LATER YEARS I.E. IN THE FINANCIAL YEARS 2006 - 07 AND 2007 - 08. IT FURTHER WIDENED THE GROUNDS OF ASSES SMENT BY BRINGING IN NOT ONLY NEW MATERIAL BUT FRESH SUBMISSIONS LIKE LICENSING OF SOFTWARE, CHIP SETS ETC. FURTHER, IT ALSO BROUGHT IN A FRESH ARGUMENT THAT CDMA IS A WHOLESOME TECHNOLOGY AND THAT QUALCOMM IS THE EXCLUSIVE OWNER OF THE JDMA TECHNOLOGY. RE VENUE SUBMITTED THAT CDMA TECHNOLOGY WORKS ON CERTAIN SCIENTIFIC PRINCIPLES AND CANNOT BE BROKEN INTO HANDSETS AND NETWORK AND THIS TECHNOLOGY IS PROVIDED BY QUALCOMM TO RELIANCE/TATA FOR EARNING ROYALTY FROM THIRD PARTY. 182. ON THE ISSUE AS TO WHETHER TH E CDMA TECHNOLOGY IS A WHOLESOME TECHNOLOGY AND WHETHER QUALCOMM PER SE IS THE EXCLUSIVE OWNER OF THIS TECHNOLOGY WE FIND THE FOLLOWING FROM THE INFORMATION GATHERED BY US. 183. CDMA IS A CHANNEL ACCESS METHOD USED BY VARIOUS RADIO COMMUNICATION TECHNOLOGI ES. IT IS A METHOD OF WIRELESS DATA COMMUNICATION THAT WAS ORIGINALLY INVENTED DURING WORLD WAR II IN ENGLAND TO THWART GERMAN WIRE INTERFERENCE. CDMA HISTORY CAN BE DIRECTLY LINKED BACK TO THE 1940S WHEN THIS FORM OF TRANSMISSION WAS FIRST ENVISAGED. THIS TECHNOLOGY HAS BEEN USED IN MANY COMMUNICATION SYSTEMS, INCLUDING THE GLOBAL POSITIONING SYSTEM AND IN THE OMNI TRACS. THE OTHER FORM OF DIGITAL TECHNOLOGIES CURRENTLY USED TO TRANSMIT IN A WIRELESS TRANSMISSION IS FREQUENCY DIVISION MULTIPLE ACCESS (FDMA ) AND TIME DIVISION MULTIPLE ACCESS (TDMA). TDMA IS THE PRIMARY COMMERCIAL FORM OF GSM PHONES (SOURCE : WIKEPEDIA, HTTP://WWW.RADIO - ELECTROICS.COM/INFO/RF - TECHNOLOGYDESIGN/CDMA/WHAT - IS - CDMA - BASICS - TUTORIAL.PHP) L84. QUALCOMM WAS THE FIRST COMPANY TO COMMER CIALIZE THIS TECHNOLOGY IN OMNITRACS (A FLEET MANAGEMENT SYSTEM). QUALCOMM PUBLICLY INTRODUCED THE CONCEPT THAT CDMA A DIGITAL COMMUNICATION TECHNIQUE METHOD COULD BE COMMERCIALLY SUCCESSFUL IN CELLULAR WIRELESS COMMUNICATION APPLICATIONS. QUALCOMM WAS JOI NED BY US NETWORK OPERATORS NYNX AND AMERITCH TO DEVELOP THE FIRST GENERATION OF CDMA TELECOMMUNICATION SYSTEM. LATER THIS TEAM WAS JOINED BY MOTOROLA AND AT&T. AS A RESULT OF THIS IT WAS POSSIBLE TO START WRITING OF SPECIFICATION FOR CDMA IN 1990. IT WAS THEN A STANDARD GROUP WAS SET UP WITH THE SUPPORT OF CELLULAR TELECOMMUNICATIONS INDUSTRY ASSOCIATION (CTIA) AND THE TELECOMMUNICATION INDUSTRY ASSOCIATION (TIA). THIS GROUP THEN PUBLISHED THE STANDARD OF FIRST CDMA SYSTEM IN THE FORM OF IS 95 RESULTING IN THE FORMAL PUBLICATION OF IS 95A IN 1995 (SOURCE: WIKEPEDIA). THE FIRST GDMA SYSTEM WAS LAUNCHED IN SEPTEMBER, 1995 BY HUTCHSON TELEPHONE CO. LTD. IN HONG KONG AND SA TELECOMMUNICATIONS IN KOREA SOON TO BE FOLLOWED ALONG WITH THE NETWORKS IN THE USA. LATE R CDMA 2000 SERIES OF STANDARDS WERE DEVELOPED. THE STANDARDS FOR CDMA ARE PAGE | 52 SPECIFIED BY 3GPP2. (SOURCE: HTTP://WWW.RADIO - ELECIRONIES.COM/INFO/RF - TECHNOLOGYDESIGN/CDMA/WHAT - IS - CDMA - BASICS TUTORIAL.PHP, HTTP://WEBOPEDIA.COM/TERM/C/CDMA.HTML) A LOOK AT WIKIPE DIA DISCLOSES THE FOLLOWING : '3GPP2 IS THE STANDARDIZATION GROUP FOR CDMA 2000, THEY SET 3G STANDARD BASED ON EARLIER 2G CDMA TECHNOLOGY. THE PARTICIPATING ASSOCIATIONS ARE FIVE OFFICIALLY RECOGNIZED STANDARD DEVELOPMENT ORGANIZATIONS ('SDOS'). THEY ARE : ARIB - ASSOCIATION OF RADIO INDUSTRIES AND BUSINESSES (JAPAN) CCSA - CHINA COMMUNICATIONS STANDARDS ASSOCIATION (CHINA) TIA - TELECOMMUNICATIONS INDUSTRY ASSOCIATION (NORTH AMERICA) TTA - TELECOMMUNICATIONS TECHNOLOGY ASSOCIATION (KOREA) TTC - TELECOMMUNICATIONS TE CHNOLOGY COMMITTEE (JAPAN) THESE SDOS ARE KNOWN AS THE PROJECT'S ORGANIZATIONAL PARTNERS. 3GPP2 REQUIRES THAT A PARTICIPATING INDIVIDUAL MEMBER COMPANY BE AFFILIATED WITH AT LEAST ONE OF THE ORGANIZATIONAL PARTNERS. IN ADDITION, THE PROJECT HAS WELCOMED MA RKET REPRESENTATION PARTNERS (MRPS) WHO OFFER MARKET ADVICE TO 3GPP2 AND BRING A CONSENSUS VIEW OF MARKET REQUIREMENTS (E.G.. SERVICES, FEATURES AND FUNCTIONALITY) FALLING WITHIN THE 3GPP2 SCOPE. THEY ARE : THE CDMA DEVELOPMENT GROUP (CDG) IPV6 FORUM AND F EMTO FORUM THE WORK OF PRODUCING 3GPP2'S SPECIFICATIONS RESIDES IN THE PROJECT'S FOUR TECHNICAL SPECIFICATION GROUPS (TSGS) COMPRISED OF REPRESENTATIVES FROM THE PROJECT'S INDIVIDUAL MEMBER COMPANIES. THE TSGS ARE : TSG - A (ACCESS NETWORK INTERFACES) TSG - C (CDMA2000ILIL) TSG - S (SERVICES AND SYSTEMS ASPECTS) TSG - X (CORE NETWORKS) EACH TSG MEETS, ON AVERAGE, TEN TIMES A YEAR TO PRODUCE TECHNICAL SPECIFICATIONS AND REPORTS. SINCE 3GPP2 HAS NO LEGAL STATUS, OWNERSHIP AND COPYRIGHT OF THESE OUTPUT DOCUMENTS IS SHARED BETWEEN THE ORGANIZATIONAL PARTNERS. THE DOCUMENTS COVER ALL AREAS OF THE PROJECT'S CHARTER, INCLUDING CDMA 2000 AND ITS ENHANCEMENTS.' 185 . IN VIEW OF THE ABOVE, IT WOULD BE INCORRECT TO SAY THAT QUALCOMM IS THE OWNER OF CDMA TECHNOLOGY. WHAT QUALC OMM OWNS ARE ESSENTIAL PATENTS IN, RESPECT OF NUMEROUS INTELLECTUAL PROPERTIES BASED ON CDMA TECHNOLOGY. THIS FACT IS EVIDENT FROM THE CLAUSES IN THE LICENSE AGREEMENTS. A PERUSAL OF THE PAGE | 53 LICENSE AGREEMENTS SHOWS THAT QUALCOMM ITSELF OBTAINS LICENSES FROM C ERTAIN THIRD PARTIES TO USE THEIR CDMA PATENTS, (PP. 247 AND 292 OF THE PAPER BOOK FILED BY THE APPELLANT). THUS THE ARGUMENT THAT CDMA IS A TECHNOLOGY OWNED BY QUALCOMM IS DEVOID OF MERIT. ALL THAT QUALCOMM OWNS IS ESSENTIAL PATENTED INTELLECTUAL PROPERTI ES DEVELOPED UNDER CDMA TECHNOLOGY. TO PUT IT IN SIMPLE WORDS A MOBILE PHONE OR A CELLPHONE IS A WIRELESS DATA COMMUNICATION DEVICE WHICH WORK ON WIRELESS TECHNOLOGY, WHILE PHONE IS A DEVICE THAT CAN MAKE AND RECEIVE TELEPHONE CALLS OVER A RADIO LINK WHILE MOVING AROUND A WIDE GEOGRAPHIC AREA. IT DOES SO BY CONNECTING TO THE CELLULAR NETWORK PROVIDED BY A MOBILE TELEPHONE OPERATOR. THIS WOULD ALLOW ACCESS TO THE PUBLIC TELEPHONE NETWORK. IN ADDITION TO VOICE DATA TRANSMISSION MODERN MOBILE PHONES ALSO SUPPO RT A WIDE VARIETY OF OTHER SERVICES SUCH AS TEXT MESSAGING, MMS, E - MAIL, INTERNET ACCESS, SHORT RANGE WIRELESS COMMUNICATION, BLUE TOOTH, BUSINESS APPLICATIONS, GAMING AND PHOTOGRAPHY. SUCH MOBILE PHONES ARE ALSO REFERRED TO AS 'SMART PHONES'. THE OTHER FO RMS OF WIRELESS DATA COMMUNICATION TECHNOLOGIES CURRENTLY IN USE ARE WIFI, GLOBAL POSITIONING SYSTEM (GPS), BLUE TOOTH, GIG B. SATELLITE TELEVISION, WIRELESS USB ETC. FROM THE ABOVE IT IS CLEAR THAT THERE ARE MANY DIGITAL TECHNOLOGIES USED TO TRANSMIT DATA IN WIRELESS FORM. HENCE THE ARGUMENT THAT CDMA IS A WHOLESOME TECHNOLOGY AND THAT QUALCOMM IS THE EXCLUSIVE OWNER OF SUCH TECHNOLOGY CANNOT BE ACCEPTED. 186. THERE ARE A NUMBER OF SIMPLE WIRELESS TECHNOLOGIES THAT ARE USED BY US IN OUR DAILY LIFE. A TV RE MOTE OR AN AC REMOTE HAVE WIRELESS TECHNOLOGY AND IT TRANSMITS SIGNALS BETWEEN TWO POINTS. MANY OTHER DEVICES SUCH AS WASHING MACHINES, MICROWAVES, CARS, COMPUTERS AND EVEN FIXED LANDLINE TELEPHONES, FAX MACHINES ETC. HAVE CHIPSETS WITH EMBEDDED SOFTWARE W HICH ENABLE THE EQUIPMENT TO WORK. TECHNOLOGY IN A 'SENSE, THE PATENT OF WHICH IS OWNED BY SOMEONE, IS BEING USED IN INDIA. ALL THESE DEVICES WHICH HAVE CHIPSETS WITH SOME EMBEDDED SOFTWARE WHEN OPERATED MAY IN A WAY RESULT IN USE OF LICENSED SOFTWARE OR I PRS IN INDIA . THE USE OF SUCH EQUIPMENT CANNOT RESULT IN A SOURCE OF INCOME FOR THE AS IT IS SALE OF THE EQUIPMENT IS AS A 'CHATTEL', THE TITLE OF WHICH GETS TRANSFERRED. THE SOFTWARE IS EMBEDDED IN THE CHIPSET AND THE CHIPSET IS PART OF THE EQUIPMENT. HEN CE THIS ARGUMENT IS DEVOID OF MERIT AND HENCE CANNOT BE ACCEPTED. 187. IN THE RESULT THIS ISSUE OF TAXABILITY OF THE 'ROYALTY' PAID BY OEMS TO THE ASSESSEE IS DECIDED IN FAVOUR OF THE ASSESSEE. HENCE THESE GROUNDS ARE ALLOWED. (UNDERLINE SUPPORTED BY US T O SHOW THE VARIOUS ARGUMENTS COVERED BY THE BENCH.) 45. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2000 - 01 TO 2004 - 05, THAT ROYALTY INCOME OF THE APPELLANT EARNED FROM OEMS SITUATED OUTSIDE INDI A FOR THE PATENTS LICENSED TO OEMS FOR MANUFACTURE OF CDMA NETWORK OUTSIDE INDIA WE PAGE | 54 HOLD THAT SAME IS NOT CHARGEABLE TO TAX U/S 9 (1) (VI) (C) OF THE ACT . [ AS THE REVENUE IS NOT CHARGEABLE TO TAX IN INDIA AS PER INCOME TAX ACT 1961 REQUIREMENT OF LOOK ING AT THE PROVISION OF ARTICLE 12 (7) OF INDO USA DTAA IS FUTILE. ACCORDINGLY, WE ALLOW GROUND NO 1 AND 2 OF THE APPEAL OF THE ASSESSEE. 46. NOW WE COME TO GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE WITH RESPECT TO REVENUE RECEIVED BY APPELLANT UNDER BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT WHAT IS TAXED AS ROYALTY INCOME IN INDIA U/S 9(1)(VI)(C) OF THE ACT AND ARTICLE 12 OF THE INDIA - US TREATY. THIS ISSUE HAS BEEN DEALT WITH EXTENSIVELY BY THE COORDINATE BENCH I N SECOND ORDER FOR ASSESSMENT YEAR 2005 - 6 TO 2008 - 09 DATED 20 TH FEBRUARY 2015 IN PARAGRAPH NO. 102 TO 108 AS UNDER: - 102. THAT TAKES US TO GROUND NO. 4, AS RAISED BY THE ASSESSEE, AGAINST HOLDING THAT THE REVENUES RECEIVED BY THE APPELLANT UNDER THE BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT IS TAXABLE AS ROYALTY INCOME IN INDIA UNDER SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF THE INDIA - USA TAX TREATY. THE ASSESSEE CONTENDS THAT IN DOING SO, THE AO HAS FAILED TO APPRECIATE THAT THE PROVISION OF BREW SOFTWARE TO TATA AND TATA TELESERVICES (MAHARASHTRA) LIMITED AND RELIANCE COMMUNICATIONS INFRASTRUCTURE LIMITED RESULTS IN SALE OF 'COPYRIGHTED ARTICLE' AND NOT LICENSING OF A 'COPYRIGHT'. 103. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, ON LY A FEW FACTS ARE REQUIRED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INVOICED AN AMOUNT OF RS 2,52,70.569 TO TATA TELESERVICES LIMITED UNDER BREW (BINARY RUNTIME ENVIRONMENT FOR WIRELESS) AGREEMENT. IT WAS NOTED THAT IT IS AN APPLICATION DEVELOPMENT PLATFORM, DEVELOPED BY QUALCOMM, FOR MOBILE PHONES THAT ENABLES USERS TO DOWNLOAD AND RUN APPLICATIONS FOR PLAYING GAMES, SENDING MESSAGES AND SHARING PHOTOS ETC. IT WAS ALSO NOTED TH AT THIS PLATFORM RUNS BETWEEN THE APPLICATION AND WIRELESS DEVICE'S CHIP OPERATING SYSTEM SO THAT PROGRAMMERS CAN DEVELOP APPLICATIONS FOR WIRELESS DEVICE WITHOUT THE CODE FOR SYSTEM INTERFACE OR UNDERSTANDING OPERATING SYSTEMS. IT WAS ALSO NOTED THAT END USERS OF BREW CUSTOMERS ARE THE CARRIERS WHO PAY AN ENABLEMENT FEES BASED ON DEVICE SALES OR A REVENUE SHARE FOR APPLICATION SOFTWARE THAT ARE DOWNLOADED. ON THESE FACTS, THE ASSESSING OFFICER PROCEEDED TO BRING THE SAME TO TAX BY OBSERVING AS FOLLOWS: I H AVE PERUSED THE SUBMISSIONS MADE BY THE ASSESSEE. HOWEVER, THIS HYPOTHESIS IS NOT CORRECT AS SOFTWARE IS LICENSED AND NOT SOLD. FURTHERMORE AS PER THE TERMS OF THE BOA AS PAGE | 55 REPRODUCED ABOVE, THE ASSESSEE HAS GIVEN TATA TELESERVICES THE LICENSE TO REPRODUCE A ND INSTALL THE COPYRIGHTED SOFTWARE. THE LICENSE FEE FOR THE RIGHT TO REPRODUCE AND USE THE BREW SOFTWARE CANNOT BE ANYTHING ELSE BUT ROYALTY. THERE IS A DISTINCTION BETWEEN SALE AND LICENSE SINCE IN A SALE NO AGREEMENT IS ENTERED INTO BETWEEN BUYER AND SE LLER, HOWEVER IN CASE OF LICENSING OF SOFTWARE AN AGREEMENT IS ENTERED INTO BETWEEN COPYRIGHT HOLDER AND THE USER. GRANT OF LICENSE IS GRANTING THE USER A RIGHT TO USE THE SOFTWARE. THE ASSESSEE'S SUBMISSION THAT IN CASES WHERE RIGHTS ACQUIRED ARE LIMITED AND NECESSARY ONLY TO ENABLE THE USER TO OPERATE THE PROGRAM AND ALLOW THE USER TO COPY THE PROGRAM ON THE USER'S COMPUTER HARD DRIVE, PAYMENTS WOULD NOT BE TREATED AS TOWARDS ROYALTY BUT AS TOWARDS BUSINESS INCOME IS NOT ACCEPTABLE. THE ASSESSEE ITSELF AG REES THAT PAYMENT IS MADE FOR ONLY THE RIGHT TO USE THE SOFTWARE AND NO OTHER TITLE OR INTEREST IN THE SOFTWARE IS TRANSFERRED TO THE PAYER. THERE IS NO TRANSFER OF OWNERSHIP RIGHTS. VARIOUS DECISIONS OF THE SUPREME COURTS AND HIGH COURTS CLARIFY THAT SALE S CONSTITUTES OUT AND OUT TRANSFER, WHEREAS IN LICENSE THERE IS ONLY RIGHT TO USE. SOME OF THESE DECISION ARE AT 69 ITR 692 (SC), 236 ITR 314 (ASC), 811 ITR 243, 671 ITR 227. THUS THIS REASONING OF THE ASSESSEE HAS NO LEGAL OR FACTUAL BASIS. IN THIS CASE, THE USER ONLY HAS A RIGHT AND GETS A LICENSE TO USE THE SOFTWARE. EVEN IN THE OECD COMMENTARY IT IS MENTIONED THAT THE CHARACTER OF PAYMENTS RECEIVED IN TRANSACTIONS INVOLVING THE TRANSFER OF COMPUTER SOFTWARE DEPENDS UPON THE NATURE OF RIGHTS THAT THE TRA NSFEREE ACQUIRES UNDER THE PARTICULAR ARRANGEMENT, REGARDING THE USE AND EXPLOITATION OF THE PROGRAM. THE RIGHTS IN COMPUTER PROGRAMME ARE IN THE FORM OF INTELLECTUAL PROPERTY. IT HAS FURTHER MENTIONED 'PAYMENTS MADE FOR THE ACQUISITION OF PARTIAL RIGHT IN THE COPYRIGHT (WITHOUT THE TRANSFEROR FULLY ALIENATING THE COPYRIGHTS) WILL REPRESENT A ROYALTY, WHERE THE CONSIDERATION IS FOR GRANTING OF RIGHTS TO USE THE PROGRAM IN A MANNER, THAT WOULD WITHOUT SUCH LICENSES CONSTITUTE THE INFRINGEMENT OF COPYRIGHTS.' UNDER THE LAWS OF THE COUNTRY, IF THE SOFTWARE OWNED BY THE ASSESSEE IS USED WITHOUT LICENSES, IT BECOMES INFRINGEMENT OF THE COPYRIGHT. THEREFORE ARGUMENTS OF THE ASSESSEE REGARDING APPLICABILITY OF OECD COMMENTARY FAIL ON THIS COUNT AS WELL 104. THE ASSESSEE DID RAISE A GRIEVANCE BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 105. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGH T OF THE APPLICABLE LEGAL POSITION. PAGE | 56 106 . WE FIND THAT THE PAYMENT IN QUESTION IS ADMITTEDLY THE PAYMENT IS FOR A SOFTWARE WHICH IS FOR A COPYRIGHTED ARTICLE AND NOT THE COPYRIGHT ITSELF. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE PAYMENT IS FOR THE COP YRIGHT ITSELF. IN THIS VIEW OF THE MATTER, THE ISSUE IS CLEARLY COVERED, IN FAVOUR OF THE ASSESSEE, BY HON'BLE DELHI HIGH COURT'S JUDGMENT IN THE CASE OF DIT V. INFRASOFT LTD. [2014] 220 TAXMAN 273/[2013] 39 TAXMANN.COM 88 WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: '85. 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 LICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MADE SHALL INCLUDE INFRASOFT' S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENCE AUTHORISATION 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. WITHOUT 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 COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. 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 SUPPLIE D FOR EACH SITE. THE LICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MADE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOT ICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENCE AUTHORISAT ION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFR ASOFT LICENCE SCHEDULE. WITHOUT 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 PAGE | 57 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 L ICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LI CENSED TO INFRASOFT. 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER T O TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT THE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIG HT RIGHT' AND A 'COPYRIGHTED ARTICLE'. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COPYRIGHTED. COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MANUSCRIPT. JUST BECAUSE O NE HAS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT. COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CO NSIDERATION PAID FOR 'COPYRIGHTED' ARTICLE. THIS SALE CONSIDERATION IS FOR PURCHASE OF GOODS AND IS NOT ROYALTY. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRAM. 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 UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPERATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INCOME IN ACCORDA NCE WITH ARTICLE 7. 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PAID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NOT T HE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON - EXCLUSIVE AND NON - TRANSFERA BLE LICENCE PAGE | 58 ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN ARTICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO RESTRICT USE OF THE COPYR IGHTED 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 SOFTW ARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES 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/LICENSEE SHOULD ACQUIRE RI GHTS EITHER IN ENTIRETY OR PARTIALLY CO - EXTENSIVE WITH THE OWNER/ TRANSFEROR WHO DIVESTS HIMSELF OF THE RIGHTS HE POSSESSES PRO TANTO. 90. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVE LY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION T O DO. 91. THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND IT IS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERE D AS ROYALTY EITHER UNDER THE INCOME TAX ACT OR UNDER THE DTAA. 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENCE AGREEMENT, ONLY THE COPY RIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND TH EY HAVE NOT ACQUIRED ANY COPYRIGHT IN THE SOFTWARE. IN THE CASE OF THE ASSESSEE COMPANY, THE LICENSEE TO WHOM THE ASSESSEE COMPANY HAS SOLD/LICENSED THE SOFTWARE WERE ALLOWED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACK UP PURPOSES WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASOFT COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE EXCLUSIVE PROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED TO USE THE SOFTWARE ONLY FOR ITS OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO PAGE | 59 LOAN/RENT/SALE/SUB - LICENCE OR TRANSFER THE COPY OF SOFTWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INFRASOFT. 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DE - COMPILING, DE - ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WIT HOUT THE WRITTEN CONSENT OF INFRASOFT. THE LICENCE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS STIPULATES THAT ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNED BY INFRASOFT AND ONLY INF RASOFT HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. THE LICENCE AGREEMENT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT FOR ANY REASON, THE LICENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPORTING INFORMATION AND LICENCE AUTHORIZATION DEVICE TO INFRASOFT. 94. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPYRIGHT REMAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE ASSESSEE. THE RIGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A PROGRAMME EMBEDD ED IN A CASSETTE OR A CD WHICH MAY BE A SOFTWARE AND THE PAYMENT MADE FOR THE SAME CANNOT BE SAID TO BE RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DTAA. WHAT THE LI CENSEE HAS ACQUIRED IS ONLY A COPY OF THE COPYRIGHT ARTICLE WHEREAS THE COPYRIGHT REMAINS WITH THE OWNER AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMME FOR BEING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM TO UTILIZE THE COPYRIGHT OF A COM PUTER PROGRAMME AND THUS THE PAYMENT FOR THE SAME IS NOT IN THE NATURE OF ROYALTY. 95. WE HAVE NOT EXAMINED THE EFFECT OF THE SUBSEQUENT AMENDMENT TO SECTION 9 (1)(VI) OF THE ACT AND ALSO WHETHER THE AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALTY IN TERMS THEREOF F OR THE REASON THAT THE ASSESSEE IS COVERED BY THE DTAA, THE PROVISIONS OF WHICH ARE MORE BENEFICIAL. 96. THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE LICENCE AGREEMENT FOR ALLOWING THE USE OF THE SOFTWARE IS NOT ROYALTY UNDER THE DTAA. 97. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT WHAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIGHTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYRIGHT BUT IS ONLY LIMITED TO THE RIGHT TO USE THE COPYRIGHTED MATERIAL AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCOME AND WOULD BE BUSINESS INCOME. 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF TH E ANDHRA PRADESH HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. ( SUPRA ) THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND STORING PAGE | 60 THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT WORK UNDER SECTION 1 4(1) OF THE COPYRIGHT ACT AND THE PAYMENT MADE FOR THE GRANT OF THE LICENCE FOR THE SAID PURPOSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT F ROM THE RIGHT CONTEMPLATED BY THE SAID PROVISION BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN DI T V. M/S NOKIA NETWORKS OY ( SUPRA ) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE. 99. IN VIEW OF THE ABOVE WE ACCORDINGLY HOLD THAT WHAT HAS BEEN TRANSFERRED IS NOT COPYRIGHT OR THE RIGHT TO USE COPYRIGHT BUT A LIMITED RIGHT TO USE THE COPYRIGH TED MATERIAL AND DOES NOT GIVE RISE TO ANY ROYALTY INCOME.' 107. LEARNED DEPARTMENTAL REPRESENTATIVE, EVEN AS HE VEHEMENTLY RELIED UPON AND SUPPORTED THE STAND OF THE AUTHORITIES BELOW, COULD NOT POINT OUT ANY DISTINGUISHING FEATURE IN THIS CASE. 108. IN VIEW OF THE ABOVE DISCUSSIONS, AND RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HON'BLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS 2,52,70.569. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 47. THEREFORE, RESPECTFULLY FOLLOWING THE SECOND ORDER OF THE COORDINATE BENCH WE HOLD THAT ROYALTY FROM BREW OPERATOR AGREEMENT OF RS. 67848685/ - AND 15% THEREOF AMOUNTING TO RS. 10177303/ - IS NOT CHARGEABLE TO TAX IN THE HANDS O F THE ASSESSEE U/S 9(1)(VI) OF THE ACT AS WELL AS ARTICLE 12 OF THE INDO - USA TAX TREATY. ACCORDINGLY, GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 48. GROUND NO 4 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) ( C ) OF THE ACT , WHICH IS P REMATURE AND HENCE REJECTED. 49. ACCORDINGLY, APPEAL OF THE ASSESSEE IN ITA NO 5353/DEL/2012 FOR AY 2009 - 10 FILED BY ASSESSEE IS PARTLY ALLOWED. PAGE | 61 ITA NO. 1241/DEL/2014 ASSESSMENT YEAR 2010 - 11 50. WE NOW MOVE TO THE ITA NO. 1241/DEL/2014 I.E. ASSESSEE'S APPEAL AGAINST THE ORDER DATED 30/01/2014 IN THE MATTER OF ASSESSMENT FOR AY 2010 - 11 UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961 WHERE IN FOLLOWING GROUNDS OF APPEAL ARE RAISED. 1. ERRED IN APPLYING THE PROVISIO NS OF SECTION 9(L)(VI)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AND ARTICLE 12(7) OF INDIA - US TAX TREATY ('TAX TREATY') FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE ORIGINAL EQUIPMENT MANUFACTURERS ('OEMS') SITUATED OUTSIDE INDIA FOR TH E PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA MOBILE HANDSETS OUTSIDE INDIA. 2. ERRED IN APPLYING THE PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT AND ARTICLE 12(7) OF THE TAX TREATY FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE O EMS SITUATED OUTSIDE INDIA FOR THE PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA NETWORK EQUIPMENT OUTSIDE INDIA. 3. ERRED IN FRAMING THE ASSESSMENT ORDER ON THE SAME SET OF ARGUMENTS THAT HAVE BEEN CONSIDERED IN DETAIL AND ADJUDICATED BY THE HON'BL E TRIBUNAL IN APPELLANT'S OWN CASE FOR AY 2000 - 01 TO AY 2004 - 05. THUS, THE ACTION OF THE LD.AO IN NOT FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL WITHOUT BRINGING ANY DISTISHIGUISHABLE FACTS ON RECORD IS UNTENABLE AND BAD IN LAW. 4. ERRED IN HOLDING THAT T HE OEMS LIKE ALCATEL, NOKIA, HUAWEI, ZTE, LG, SAMSUNG ETC. HAVE OBTAINED LICENSE FROM THE APPELLANT FOR THEIR OWN BUSINESS IN INDIA AND THE TAX THE ROYALTY INCOME OF THE APPELLANT UNDER THE DEEMING PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT. 5. FAILED TO APPRECIATE THAT THE INFORMATION/ REPLIES RECEIVED FROM THE ASSESSING OFFICERS OF THE EIGHT OEMS (A) CLEARLY STATES THAT THESE OEMS ARE INTO MANUFACTURE AND SUPPLY OF GSM EQUIPMENT. HENCE, TO HOLD THAT THE SALE OF HANDSETS AND EQUIPMENTS IN WHICH QUALCOMM 'S PATENTED TECHNOLOGY IS USED IS DIRECTLY ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENTS ('PE') OF THESE OEMS IS GROSSLY INCORRECT. (B) DOES NOT ESTABLISH THAT THE OEMS HAVE USED QUALCOMM'S CDMA PATENTS FOR THE PURPOSE OF CARRYING ON BUSINESS IN INDIA OR F OR THE PURPOSE OF EARNING INCOME FROM ANY SOURCE IN INDIA. 6. FAILED TO APPRECIATE THAT THE ROYALTY INCOME EARNED BY THE APPELLANT IS FOR LICENSE OF CDMA PATENTS FOR MANUFACTURE OF CDMA HANDSETS AND EQUIPMENTS AND NOT FOR INSTALLATION AND COMMISSIONING OF THE PAGE | 62 EQUIPMENT. THUS TO HOLD THAT THE OEMS USE APPELLANT'S TECHNOLOGY VERY MUCH IN INDIA WHERE THESE EQUIPMENTS ARE INSTALLED IS GROSSLY INCORRECT. 7. ERRED IN MAKING CERTAIN INCORRECT FACTUAL OBSERVATIONS/ STATEMENTS FOR TAXING THE ROYALTY INCOME OF THE AP PELLANT EARNED FROM THE OEMS SITUATED OUTSIDE UNDER THE DEEMING PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT. THE INCORRECT FACTUAL OBSERVATIONS / STATEMENTS ARE BROUGHT OUT IN THE ANNEXURE ENCLOSED TO THE GROUNDS OF APPEALS. 8. ERRED IN HOLDING THAT THE R EVENUES RECEIVED BY THE APPELLANT UNDER THE BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT IS TAXABLE AS ROYALTY INCOME IN INDIA UNDER SECTION 9(L)(VI) OF THE ACT AND UNDER ARTICLE 12 OF THE INDIA - USA TAX TREATY. 9. ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT. 10. ERRED IN LAW ON INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 51. LEARNED PARTIES FAIRLY AGREE D THAT WHATEVER IS DECIDED FOR THE ASSESSMENT YEAR 200 9 - 10 WILL EQUALLY APPLY FOR THIS ASSESSMENT YEAR AS WELL AS ALL THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE, AS GRIEVANCE OF THE ASSESSEE, ARE THE SAME. 52. IN VIEW OF THE ABOVE POSITION, AND FOLLOWING OUR DECISION FOR THE ASSESSMENT YEAR 200 9 - 10 , WE HOLD THAT THE OBSERVATIONS MADE IN THE ORDER FOR THE SAID YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. THE TAXATION OF ROYALTY IN RESPECT OF THE CDMA HANDSETS AND EQUIPMENT AND THE ADDITION IN RESPECT OF INVOICING THE REVENUES UNDER THE BRE W AGREEMENT THUS STAND DELETED. ACCORDINGLY, GROUND NO 1 TO 8 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 53. GROUND NO 9 IS REGARDING CHARGING OF INTEREST U/S 234B OF THE ACT, WHICH DOES NOT SURVIVE AS WE HAVE ALREADY DELETED THAT INCOME OF THE ASSESSEE CHAR GED TO TAX BY THE LD AO . HENCE, THIS GROUND IS DISMISSED. 54. GROUND NO 10 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE ACT, WHICH IS PREMATURE AND HENCE REJECTED. 55. IN THE RESULT, THE AP PEAL FOR THE ASSESSMENT YEAR 2010 - 11 IS ALSO PARTLY ALLOWED. ITA NO. 7064/DEL/2014 ASSESSMENT YEAR 2011 - 12 PAGE | 63 56. WE NOW MOVE TO THE ITA NO. 7064/DEL/2014 I.E. ASSESSEE'S APPEAL AGAINST THE ORDER DATED 3/12/2014 FOR AY 2011 - 12 UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961 WHERE IN FOLLOWING GROUNDS OF APPEAL ARE RAISED : - 1. ERRED IN APPLYING THE PROVISIONS OF SECTION 9(L)(VI)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AND ARTICLE 12(7) OF INDIA - US TAX TREATY ('TAX TREATY') FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE ORIGINAL EQUIPMENT MANUFACTURERS ('OEMS') SITUATED OUTSIDE INDIA FOR THE PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA MOBILE HANDSETS OUTSIDE INDIA. 2. ERRED IN APPLYING THE PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT AND ARTICLE 1 2(7) OF THE TAX TREATY FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE OEMS SITUATED OUTSIDE INDIA FOR THE PATENTS LICENSED TO THE OEMS FOR MANUFACTURE OF CDMA NETWORK EQUIPMENT OUTSIDE INDIA. 3. ERRED IN FRAMING THE ASSESSMENT ORDER ON THE SAME SET OF ARGUMENTS THAT HAVE BEEN CONSIDERED IN DETAIL AND ADJUDICATED BY THE HON'BLE TRIBUNAL IN APPELLANT'S OWN CASE FOR AY 2000 - 01 TO AY 2004 - 05. THUS, THE ACTION OF THE LD.AO IN NOT FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL WITHOUT BRINGING ANY DI STISHIGUISHABLE FACTS ON RECORD IS UNTENABLE AND BAD IN LAW. 4. ERRED IN HOLDING THAT THE OEMS LIKE ALCATEL, NOKIA, HUAWEI, ZTE, LG, SAMSUNG ETC. HAVE OBTAINED LICENSE FROM THE APPELLANT FOR THEIR OWN BUSINESS IN INDIA AND THE TAX THE ROYALTY INCOME OF THE APPELLANT UNDER THE DEEMING PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT. 5. FAILED TO APPRECIATE THAT THE INFORMATION/ REPLIES RECEIVED FROM THE ASSESSING OFFICERS OF THE EIGHT OEMS (A) CLEARLY STATES THAT THESE OEMS ARE INTO MANUFACTURE AND SUPPLY OF G SM EQUIPMENT. HENCE, TO HOLD THAT THE SALE OF HANDSETS AND EQUIPMENTS IN WHICH QUALCOMM'S PATENTED TECHNOLOGY IS USED IS DIRECTLY ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENTS ('PE') OF THESE OEMS IS GROSSLY INCORRECT. (B) DOES NOT ESTABLISH THAT THE OEMS HAVE USED QUALCOMM'S CDMA PATENTS FOR THE PURPOSE OF CARRYING ON BUSINESS IN INDIA OR FOR THE PURPOSE OF EARNING INCOME FROM ANY SOURCE IN INDIA. 6. FAILED TO APPRECIATE THAT THE ROYALTY INCOME EARNED BY THE APPELLANT IS F OR LICENSE OF CDMA PATENTS FOR MANUFACTURE OF CDMA HANDSETS AND EQUIPMENTS AND NOT FOR INSTALLATION AND COMMISSIONING OF THE EQUIPMENT. THUS TO HOLD THAT THE OEMS USE APPELLANT'S TECHNOLOGY VERY MUCH IN INDIA WHERE THESE EQUIPMENTS ARE INSTALLED IS GROSSLY INCORRECT. PAGE | 64 7. ERRED IN MAKING CERTAIN INCORRECT FACTUAL OBSERVATIONS/ STATEMENTS FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE OEMS SITUATED OUTSIDE UNDER THE DEEMING PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT. THE INCORRECT FACTUAL OBS ERVATIONS / STATEMENTS ARE BROUGHT OUT IN THE ANNEXURE ENCLOSED TO THE GROUNDS OF APPEALS. 8. ERRED IN HOLDING THAT THE REVENUES RECEIVED BY THE APPELLANT UNDER THE BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT IS TAXABLE AS ROYALTY INCOME IN INDIA UN DER SECTION 9(L)(VI) OF THE ACT AND UNDER ARTICLE 12 OF THE INDIA - USA TAX TREATY. 9. ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 10. ERRED IN LAW ON INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 57. LEARNED PARTIES FAIRLY AGREE D TH AT WHATEVER IS DECIDED FOR THE ASSESSMENT YEAR 200 9 - 10 WILL EQUALLY APPLY FOR THIS ASSESSMENT YEAR AS WELL AS ALL THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE, AS ALSO GRIEVANCE OF THE ASSESSEE, ARE THE SAME. 58. IN VIEW OF THE ABOVE POSITION, AND FOLLOW ING OUR DECISION FOR THE ASSESSMENT YEAR 200 9 - 10 , WE HOLD THAT THE OBSERVATIONS MADE IN THE ORDER FOR THE SAID YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. THE TAXATION OF ROYALTY IN RESPECT OF THE CDMA HANDSETS AND EQUIPMENT AND THE ADDITION IN RESPECT OF INVOICING THE REVENUES UNDER THE BREW AGREEMENT THUS STAND DELETED. ACCORDINGLY, GROUND NO 1 TO 8 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 59. GROUND NO 9 IS REGARDING CHARGING OF INTEREST U/S 234B OF THE ACT, WHICH DOES NOT SURVIVE AS WE HAVE ALREADY HELD THAT INCOME OF THE ASSESSEE CHARGED TO TAX BY THE LD AO, IS DELETED. HENCE, THIS GROUND IS DISMISSED. 60. GROUND NO 10 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE ACT, WHICH IS PREMATURE AND HENCE REJECTED. 61. IN THE RESULT, THE AP PEAL FOR THE ASSESSMENT YEAR 2011 - 12 IS ALSO PARTLY ALLOWED. ITA NO. 189/DEL/2016 ASSESSMENT YEAR 2012 - 13 62. WE NOW MOVE TO THE ITA NO. 189/DEL/2016 I.E. ASSESSEE'S APPEAL AGAINST THE ORDER DATED 29/10/2015 FOR AY 2012 - 13 UNDER SECTION 143(3) PAGE | 65 R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961 WHERE IN FOLLOWING GROUNDS OF APPEAL ARE RAISED : - 1. ERRED IN APPLYING THE PROVISIONS OF SECTION 9(L)(VI)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AND ARTICLE 12(7) OF INDIA - US TAX TREATY ('TAX TREATY') FOR BRINGING TO TAX, THE ROYALTY INCOME RECEIVED BY THE APPELLANT FROM THE NON - RESIDENT ORIGINAL EQUIPMENT MANUFACTURERS ('OEMS') UNDER THE SUBSCRIBER UNIT LICENSE AGREEMENT WITH THE NON - RESIDENT OEMS. 2. ERRED IN APPLYING THE PROVISI ONS OF SECTION 9(L)(VI)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AND ARTICLE 12(7) OF INDIA - US TAX TREATY ('TAX TREATY') FOR BRINGING TO TAX, THE ROYALTY INCOME RECEIVED BY THE APPELLANT FROM THE NON - RESIDENT ORIGINAL EQUIPMENT MANUFACTURERS ('OEMS') UND ER THE INFRASTRUCTURE EQUIPMENT LICENSE AGREEMENT WITH THE NON - RESIDENT OEMS. 3. ERRED IN FRAMING THE ASSESSMENT ORDER ON THE SAME SET OF ARGUMENTS THAT HAVE BEEN CONSIDERED IN DETAIL AND ADJUDICATED BY THE HON'BLE TRIBUNAL IN APPELLANT'S OWN CASE FOR AY 2 000 - 01 TO AY 2004 - 05. THUS, THE ACTION OF THE LD.AO IN NOT FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL WITHOUT BRINGING ANY DISTISHIGUISHABLE FACTS ON RECORD IS UNTENABLE AND BAD IN LAW. 4. FAILED TO APPRECIATE THAT THE INFORMATION/ REPLIES RECEIVED FROM T HE ASSESSING OFFICERS OF THE EIGHT OEMS (A) CLEARLY STATES THAT THESE OEMS ARE INTO MANUFACTURE AND SUPPLY OF GSM EQUIPMENT. HENCE, TO HOLD THAT THE SALE OF HANDSETS AND EQUIPMENTS IN WHICH QUALCOMM'S PATENTED TECHNOLOGY IS USED IS DIRECTLY ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENTS ('PE') OF THESE OEMS IS GROSSLY INCORRECT. (B) DOES NOT ESTABLISH THAT THE OEMS HAVE USED QUALCOMM'S CDMA PATENTS FOR THE PURPOSE OF CARRYING ON BUSINESS IN INDIA OR FOR THE PURPOSE OF EARNING INCOME FROM ANY SOURCE IN INDIA. (C) IN VIOLATING THE PRINCIPLES OF NATURAL JUSTICE, WHILST PLACING RELIANCE ON THE INFORMATION OBTAINED FROM THE AOS OF CERTAIN OEMS ON THE PRESENCE OF A PERMANENT ESTABLISHMENT ('PE') OF THE OEMS IN INDIA. 5. ERRED IN MAKING CERTAIN INCORRECT OBSERVATIONS / FACTUAL MISSTATEMENTS FOR TAXING THE ROYALTY INCOME OF THE APPELLANT EARNED FROM THE OEMS SITUATED OUTSIDE UNDER THE DEEMING PROVISIONS OF SECTION 9(L)(VI)(C) OF THE ACT. THE INCORRECT FACTUAL OBSERVATIONS / STATEMENTS ARE BROUGHT OUT IN THE ANNEXURE ENC LOSED TO THE GROUNDS OF APPEALS. 6. ERRED IN HOLDING THAT THE REVENUES RECEIVED BY THE APPELLANT UNDER THE BREW OPERATOR AGREEMENT AND BREW CARRIER AGREEMENT IS TAXABLE AS ROYALTY INCOME IN INDIA UNDER SECTION 9(L)(VI) OF THE ACT AND UNDER ARTICLE 12 OF TH E INDIA - USA TAX TREATY. PAGE | 66 7. ERRED IN NOT FOLLOWING THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INFRASOFT LTD. [(2013) 85 CCH 0319 DELHC] WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE APPELLANT, AS ADJUDICATED BY THE HON'BLE TRIBUNAL IN APPE LLANT'S OWN CASE FOR AY 2005 - 06 TO 2008 - 09. 8. ERRED IN LAW ON INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT. 9. THE HON'BLE DRP AND THE LD. AO FELL IN ERROR OF VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY FRAMING THE ASSESSMENT OR DER WITHOUT CONSIDERING THE APPELLANT'S REQUEST FOR A DETAILED EXAMINATION OF FACTS/ TECHNICAL ASPECTS AS DIRECTED BY THE HONBLE TRIBUNAL VIDE ITS ORDER DATED FEBRUARY 20, 2015. 63. LEARNED PARTIES FAIRLY AGREE D THAT WHATEVER IS DECIDED FOR THE ASSESSMENT YEAR 200 9 - 10 WILL EQUALLY APPLY FOR THIS ASSESSMENT YEAR AS WELL AS ALL THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE, AS ALSO GRIEVANCE OF THE ASSESSEE, ARE THE SAME. 64. IN VIEW OF THE ABOVE POSITION, AND FOLLOWING OUR DECISION FOR THE ASSESSMENT YEAR 2 00 9 - 10, WE HOLD THAT THE OBSERVATIONS MADE IN THE ORDER FOR THE SAID YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. THE TAXATION OF ROYALTY IN RESPECT OF THE CDMA HANDSETS AND EQUIPMENT AND THE ADDITION IN RESPECT OF INVOICING THE REVENU ES UNDER THE BREW AGREEMENT THUS STAND DELETED. ACCORDINGLY, GROUND NO 1 TO 7 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 65. GROUND NO 8 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE ACT, WHICH IS PREMATURE AND HENCE REJECTED. 66. GROUND NO 9 OF THE APPEAL OF ASSESSEE IS THAT LD . DRP AND THE LD. AO FELL IN ERROR OF VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY FRAMING THE ASSESSMENT ORDER WITHOUT CONSIDERING THE APPELLANT'S REQUEST FOR A DETAILED EXAMINATION OF FACTS/ TECHNICAL ASPECTS AS DIRECTED BY THE HONBLE TRIBUNAL VIDE ITS ORDER DATED FEBRUARY 20, 2015 . WE DISMISS THIS GROUND OF APPEAL FOR THE REASON THAT FIRSTLY THE LD AR HAS OBJECTED TO LOOKING IN TO THE ORDERS OF THE LD AO FRAMED IN CONSEQUENCES OF THE ORDER OF THE COORDINATE BENCH DATED 20/2/2015 AND SECONDLY WE HAVE ALREADY DELETED THE ADDITION ON ACCOUNT OF ROYALTY. HENCE, THIS GROUND OF APPEAL IS REJECTED. PAGE | 67 67. IN THE RESULT, THE AP PEAL FOR THE ASSESSMENT YEAR 201 2 - 13 IS ALSO PARTLY ALLOWED. ITA NO. 6732/DEL/2015 ASSESSMENT YEAR 2012 - 13 68. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 6732/DEL/2015 FOR THE ASSESSMENT YEAR 2012 - 13: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN DIRECTING THE AO TO NOT LEVY INTEREST U/S 234B OF THE INCOME TAX ACT, 1961. 69. AS WE HAVE HELD THAT INCOME OF THE ASSESSEE IS NOT CHARGEABLE TO TAX IN INDIA AS ROYALTY THERE CANNOT BE ANY QUESTION OF CHARGEABILITY OF INTEREST U/S 234B OF THE INCOME TAX ACT. EVEN OTHERWIS E, THE DISPUTE RESOLUTION PANEL HAS GIVEN A DIRECTION RELYING ON THE DECISION OF HON'BLE DELHI HIGH COURT IN GE PACKAGE POWER INC (2015 - TII - 02 - HC - DEL - INTL). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD DISPUTE RESOLUTION PANEL. HENCE, THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 70. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 71. IN THE RESULT, APPEALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 TO 2012 - 13 ARE PARTLY ALLOWED AND A PPEAL OF THE REVENUE FOR AY 2012 - 13 IS DISMISSED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 / 0 4 / 2018 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 6 / 04 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI