Huawei Technologies Co. Ltd., P.R. China V. DCIT, Circle Gurgaon, International Taxation, Gurgaon

ITA 6799/DEL/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0945 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 31-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 09-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘D’: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No.1500/Del/2014, [Assessment Year: 2009-10] ITA No.6921/Del/2014, [Assessment Year: 2010-11] ITA No.937/Del/2016, [Assessment Year: 2011-12] ITA No.6376/Del/2016, [Assessment Year: 2012-13] ITA No.6377/Del/2016, [Assessment Year: 2013-14] ITA No.6799/Del/2017, [Assessment Year: 2014-15] ITA No.5506/Del/2018, [Assessment Year: 2015-16] ITA No.8263/Del/2019, [Assessment Year: 2016-17] M/s Huawei Technologies Co. Ltd. Administration Building Headquarters of Huawei Technologies Col Ltd. Bantian Longgang Dist. Shenzen, 518129 P.R. China Vs The Additional D.I.T, International Taxation, New Delhi PAN-AACCH2982B Assessee Revenue Assessee by Sh. Ajay Vohra, Sr. Adv. Sh. Anshul Sachhar, Adv. & Sh. Tavish Verma, Adv. Revenue by Ms. Sapna Bhatia, CIT-DR Date of Hearing 01.09.2022 Date of Pronouncement 13.10.2022 ORDER PER BENCH, The ITAT has passed a common order in these cases for the aforesaid appeals, vide order dated 09.12.2020. Ground No.6 and 7 noted by the ITAT in the aforesaid order read as under:- M/s Huawei Technologies Co. Ltd. 2 6.1 On the facts and circumstances of the case and in law, the AO as well as the Hon'ble DRP erred in not appreciating that that since no part of activity relating to sale of network equipment and terminal equipments was carried out by the Appellant in India, the question of attributing-any income in India d9cs not arise. 6.2 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not appreciating that no portion of profits, if any, accruing to Appellant from off shore sale of terminal equipments to Indian customers can be attributed to the alleged PE in India given the nature of equipment, customer profile and modalities of undertaking sales. 6.3 On the facts and circumstances of the case and in law, the Learned AO has erred in proposing and the Hon'ble DRP has erred in confirming arbitrary estimation of profits to the extent of 725 percent on offshore sales of equipments in the hands of the Appellant in India while completely disregarding the global operating margin of the Appellant for the year under consideration. 6.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not appreciating that as the alleged PE of the Appellant has been remunerated at arms' length price and the same has also been confirmed by Transfer Pricing Officer ('TPO') in his order dated January 29, 2013, no further income could be attributed and assessed to tax in India, in the hands of the Appellant. 7.1 On the facts and circumstances of the ease and in law, the Learned AO erred in proposing and the Hon'ble DRP further erred in confirming the action of Learned AO of allocating 30% of the total supplies towards software in the equipment mid taxing the same on gross basis as ’Royalty' under the provisions of the Act and Tax Treaty. Even otherwise, the subject allocation proposed by the Learned AO and confirmed by the Hon'ble DRP is incorrect and contrary to material furnished on record. 7.2 Without prejudice to above, in case it is held that the revenue from supply of software along with the hardware is taxable as Royalty under the provisions of Act and/or Tax Treaty, then the same being effectively connected with the alleged PE can at best be taxed oh net basis as ’Business Profits' under Article 7 of the Tax Treaty; 7.3 Without prejudice to above, on the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not appreciating that the revenues from supply of software can at best be subjected to lax as ’Business Profits' under the Article M/s Huawei Technologies Co. Ltd. 3 7 read with Article 5 of the Tax Treaty (i.e. in the event it is held that the Appellant constitutes a PE in India). 7.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not following the decision of Jurisdictional Hon'ble Delhi High Court in case of Nokia Networks OY (253 CTR 417) and Ericsson A.I3. (19 ITR (Trib) 341) and various other judicial precedents, supporting Appellant's above contentions.” 2. Subsequently in MA Nos. 60 to 67/Del/2021, for Assessment Years 2009-10 to 2016-17 vide order dated 29.10.2021 ground nos. 6 and 7 were recalled as under:- “ISSUE NO.2 Incorrect adjudication of Ground of appeal No.6, Attribution of profits. ISSUE NO. 3 Non-adjudication of Ground of Appeal No. 7 – Taxation of software as royalty 6. Issue No. 2 has been decided and considered by the Tribunal at Paras 79 to 83 of its order wherein the Tribunal has followed the earlier order of this Tribunal passed in A.Ys 2005-06 to 2008-09. The findings of the Tribunal while adjudicating Issue No. 2 have been intermingled with Issue No. 3 relating to Non-adjudication of Ground of Appeal No. 7. 7. We have given thoughtful consideration to the orders of this Tribunal. We are of the considered view that for the limited purpose of adjudication of Ground No. 6 with its sub-grounds and Ground No. 7, needs to be re-adjudicated as there is a mistake apparent from record in not adjudicating the captioned grounds. Therefore, for this limited purpose, the captioned order of this Tribunal is recalled for the captioned A.Ys for the adjudication of Ground Nos. 6 and 7 in their true perspective. 8. Registry is directed to list the appeals for hearing of Ground Nos.6 and 7 on 08 th February, 2022 and inform the parties accordingly.” M/s Huawei Technologies Co. Ltd. 4 3. Pursuant to the above recall order, we have heard both the parties and perused the records. As regards ground no.6 is concerned, we note that the said ground of appeal no.6 comprised of following issues: “6.1 On the facts and circumstances of the case and in law, the AO as well as the Hon'ble DRP erred in not appreciating that that since no part of activity relating to sale of network equipment and terminal equipments was carried out by the Appellant in India, the question of attributing-any income in India d9cs not arise. 6.2 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not appreciating that no portion of profits, if any, accruing to Appellant from off shore sale of terminal equipments to Indian customers can be attributed to the alleged PE in India given the nature of equipment, customer profile and modalities of undertaking sales. 6.3 On the facts and circumstances of the case and in law, the Learned AO has erred in proposing and the Hon'ble DRP has erred in confirming arbitrary estimation of profits to the extent of 725 percent on offshore sales of equipments in the hands of the Appellant in India while completely disregarding the global operating margin of the Appellant for the year under consideration. 6.4 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRP erred in not appreciating that as the alleged PE of the Appellant has been remunerated at arms' length price and the same has also been confirmed by Transfer Pricing Officer ('TPO') in his order dated January 29, 2013, no further income could be attributed and assessed to tax in India, in the hands of the Appellant.” 4. In the hearing before us, the Ld. Counsel for the assessee submitted that the assessee has duly taken a ground that alleged PE of the assessee has been remunerated at Arm’s length price and no further income could be attributed and assessed to tax in India, in hands of the assessee. For this purposes, the Ld. Counsel for the assessee relied upon various Case laws. M/s Huawei Technologies Co. Ltd. 5 5. The Ld. CIT-DR in submission in this regards has pointed out that this aspect has been duly rejected by the ITAT in assessee own case for AY 2005-06 to 2008-09 vide order dated 21.03.2014 in 149 ITD 223. We note that ground 6 noted by the Tribunal in this order dated 21.03.2014 read as under:- 6. On the facts and circumstances of the case and in law, the learned AO erred in proposing and the DRP further erred in confirming the action of learned AO of attributing income to the alleged PE of the appellant. 6.1 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon'ble DRO erred in not appreciating that since no part of activity relating to sale of network equipment was carried out in India, the question of attributing any income to India did not arise. 6.2 On the facts and circumstances of the case and in law, the Learned AO as well as the Hon’ble DRP erred in not appreciating that no portion of profit, if any, accruing to appellant from offshore sale of terminal equipment to Indian customers can be attributed to the alleged PE in India given the nature of equipment, customer profile and modalities of undertaking sales. 6.3 On the facts and circumstances of the case and in law, the learned AO as well as the Hon’ble DRP erred in not appreciating that as the alleged PE of the appellant has been remunerated at arm’s length price, no further income could be attributed and assessed to tax in India, in the hands of the appellant.” 6. After adjudicating the issue, the Tribunal had concluded that “accordingly, ground nos.5 & 6 of the assessee’s appeal are rejected.” Hence, it is clear that the Tribunal has categorically rejected this ground no.6 which naturally is inclusive of its sub-grounds. In this regard, the Ld. DR has pointed out in her note as under “1. In this regard it is submitted that the issue of attribution of profit to the PE including attribution of profits despite remunerating the Indian AE at Arm’s length in the case of the assessee is no more res integra. M/s Huawei Technologies Co. Ltd. 6 The Hon’ble ITAT in absolutely identical circumstances, in the appeals filed for the A.Y. 2005-06~to 2008-09~in the decision dated 21.03.2074 has rejected the related grounds of appeal inJotoHn this regard, reference may kindly be made to the common Gr No. 6 of the appeals which read as under: " 6. On the facts and circumstances of the case and in law, the learned AO erred in proposing and the Hon'ble DRP further erred in confirming the action of learned AO of attributing income to the alleged PE of the appellant. 6.1 On the facts and circumstances of the case and in law, the learned AO as well as the Hon'ble DRO erred in not appreciating that since no part of activity relating to sale of network equipment was carried out in India, the question of attributing any income to India did not arise. 6.2 On the facts and circumstances of the case and in law, the learned AO as well as the Hon'ble DRP erred in not appreciating that no portion of profits, if any, accruing to appellant from offshore sale of terminal equipment to Indian customers can be attributed to the alleged PE in India given the nature of equipment, customer profile and modalities of undertaking sales. 6.3 On the facts and circumstances of the case and in law, the learned AO as well as the Hon'ble DRP erred in not appreciating that as the alleged PE of the appellant has been remunerated at arms' length price, no further income could be attributed and assessed to tax in India, in the hands of the appellant." From a plain reading of the Ground No 6.3 above, it is clear that absolutely identical ground was taken in appeals for those assessment years. 1.1 In para 7 of the order, the Hon’ble Tribunal took up ground 5 (related to PE) and ground 6 of the appellant and decided the matter in para 10, which is reproduced as under: “10. At the time of hearing before us, the learned counsel for the assessee was unable to controvert the finding recorded by the Assessing Officer as well as learned DRP. The Assessing Officer has clearly recorded the finding that the business of the assessee in India is being conducted with active involvement of the employees of Huawei India. Such employees of Huawei India along with the employees of the assessee have jointly prepared bidding documents 10 ITA- M/s Huawei Technologies Co. Ltd. 7 5253/Del/2011 & others for contracts, negotiated and concluded the contract on behalf of the assessee with its Indian customers. He has also recorded the finding that the employees of Huawei India form the sales team of the assessee. Such employees have habitually secured orders in India wholly or almost wholly for the assessee. Various documents found during the course of survey in the form of agreements, purchase orders, copies of contract prove the active involvement of employees of Indian company in the conclusion of contracts on behalf of the assessee. All these facts recorded by the Assessing Officer and upheld by the DRP have not been controverted before us. In view of the above, we do not find justification to interfere with the order of learned DRP in this regard. Accordingly, ground Nos.5 & 6 of the assessee’s appeal are rejected. ” The Hon’ble Tribunal not only upheld the existence of business connection and PE in India but also rejected the ground raised by the assessee on account of attribution of profits. 1.2 Further, in Para 29 & 30 of the order dated 21.03.2014, the Hon’ble ITAT summed up its findings as under: “29. Ground Nos.- 1 to 9 raised by the assessee in ITA No.5254/Del/2011 & 5256/Del/2011 and ground Nos.l to 8 raised by the assessee in ITA No.5255/Del/2011 are identical to the grounds raised by the assessee in ITA No.5253/Del/2011 disposed of by us in the earlier portion of this order. For the detailed discussion and reasons recorded above - (i) Ground Nos.1 to 3 raised in these three appeals need no adjudication for the reasons given in paragraph 3 above. (ii) Ground No. 4 raised in these three appeals is rejected. (Hi) Ground Nos.5 & 6 raised by the assessee in these three appeals are rejected. (iv) The issue raised vide ground No. 7 raised in these three appeals is restored to the file of the Assessing Officer for recomputation of income as per our direction given in paragraph 22 above. (v) The issue raised vide ground No.8 by the assessee in ITA No.5254/Del/2011 and 5256/Del/2011 is restored to the file of the Assessing Officer for re adjudication as per our direction given in paragraph 27 above. M/s Huawei Technologies Co. Ltd. 8 (vi) Ground No.8 in ITA No.5255/Del/2011 and ground No.9 in ITA Nos.5254/Del/2011 & 5256/Del/2011 need no adjudication. 30. In the result, the appeals of the assessee are treated to be partly allowed for statistical process.” 7. In rebuttal in this regard, the Ld. DR submits that while arguing the appeal for Assessment Years 2005-06 to 2008-09, the assessee has made no submission on profit attributed of alleged PE by the Assessing Officer in those years. That aspect has been duly noted by the Tribunal while upholding the order of the AO/DRP and dismissing the appeal filed by the assessee for those years. We note that this reference by the ld. counsel for the assessee is not factually correct as ITAT in its order has nowhere mentioned that this aspect has not been argued or this aspect has not been decided by the Tribunal. In this view of the matter, since the Tribunal in assessee’s own case has rejected this ground, ground no.6 alongwith all its sub-grounds raised by the assessee is liable to be dismissed and the same is dismissed as such. For this, we place reliance upon the decision of the Hon’ble Apex Court in the case of Honda Siel Power Products Ltd. vs CIT in Appeal (Civil) No.5412 of 200, order dated 26.11.2007 regarding cannon of following Co-ordinate Bench decision. In this view of the matter, other case laws referred by the Ld. counsel for the assessee are not considered applicable in the particular facts of this case. This is more so when ITAT order has not been reversed by Hon’ble jurisdictional High Court. Moreover, it is also noticed that assessee is already in appeal before the Hon’ble High Court against this order of the Tribunal. No such ground as in this appeal has been raised before Hon’ble High Court. Ld. counsel for the assessee in this M/s Huawei Technologies Co. Ltd. 9 regard submitted that there is no estoppel as to law and he can raise this ground before ITAT. We agree that the assessee can raise this necessary ground before the Tribunal but we are also of the opinion that judicial discipline also demands that we follow ITAT order in assessee’s own case, facts being similar. Since ITAT in its common order dated 21.03.2014 has categorically held that ground no.6 by the assessee is dismissed. We follow the same and hold that following the precedent in assessee’s own case, this ground is dismissed. 8. As regards ground no.7 with regard to the taxation of software royalty, both parties have accepted that in the assessee’s own case for Assessment Years 2005-06 to 2008-09, the Revenue’s appeal in this regard was dismissed by ITAT and that Hon’ble Delhi High Court has dismissed the appeal against this order. Other aspects mentioned by both the parties in written submission are held to be not relevant in the light of our above adjudication. 9. Accordingly, ground no. 6 raised by the assessee is dismissed and ground no.7 is allowed. 10. Our above order applies mutatis mutandis to all the appeals here. Order pronounced in the open court on 13 th October, 2022. Sd/- Sd/- [YOGESH KUMAR US] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 13.10.2022. M/s Huawei Technologies Co. Ltd. 10 f{x~{tÜ f{x~{tÜf{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi