AGFA HEALTHCARE NV, MUMBAI V. DCIT (IT)- 1 (1)(1), MUMBAI

ITA 6921/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2155 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 04-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Opportunity of being heard; Principle of natural justice; Retrospective amendment; Initiation of penalty proceedings; Commercial expediency; Set aside; Capital Gains
• Section: 271(1)(c); 92A; 234B; 201(1); 195; 201; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I, BENCH MUM BAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.6921/MUM/2018 ( ASSESSMENT YEAR: 2015-16 ) AGFA HEALTHCARE NV SEPTESTRAAT 27 MORTSEL,BELGIUM-2640 C/O DELOITTE HASKINS & SELLS LLP, 28 TH FLOOR INDIABULLS FINANCE CENTRE TOWER 3, SENAPATI BAPAT MARG ELPHINSTONE (W), MUMBAI-400 013 VS. DCIT, INTERNATIONAL TAXATION- 1(1)(1) 5 TH FLOOR ROOM NO.517 AIR INDIA BUILDING NARIMAN POINT MUMBAI-400 021 PAN/GIR NO. AA ICA8105D ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI. V.SREEKAR, DR ASSESSEE BY SHRI. ANIL KADAM, AR DATE OF HEARING 25 /11 /2019 DATE OF PRONOUNCEMENT 25/11/2019 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESEE IS DIRECTED AGAINS T FINAL ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICE R (AO) CONSEQUENT TO DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP)- 1(WZ), U/S 144C(5) OF THE I.T.ACT, 1961, DATED 24/1 0/2018 AND IT PERTAINS TO ASSESSMENT YEAR (AY) 2015-16. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 2 1. TAXABILITY OF RECEIPTS FOR PROVISION OF INFORMAT ION AND COMMUNICATION SERVICES / CROSS-CHARGES 1.1 THE LEARNED DRP / DCIT ERRED IN TAXING AN AMOUNT OF RS. 2,23,73,781 RECEIVED BY THE APPELLANT FROM AGFA HEA LTHCARE INDIA PVT. LTD. [AHIPL] FOR PROVISION OF INFORMATION AND COMMU NICATION SERVICES [ICS] AS ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT AS WELL AS INDIA-BELGIUM TAX TREATY. 1.2 THE LEARNED DCIT ERRED IN HOLDING THAT THE PAYMENTS RECEIVED BY THE APPELLANT ARE IN RELATION TO USE OF COMPUTER SO FTWARE AND/OR FOR THE USE OF PROCESS OR FOR RENDERING SERVICES IN RELATIO N TO THOSE ITEMS. 1.3 THE LEARNED DRP ERRED FN RELYING ON ITS DI RECTIONS ISSUED ON IDENTICAL GROUNDS FOR ASSESSMENT YEAR 2014-15 AND H OLDING THAT THE SYSTEM DEVELOPED BY THE APPELLANT CONSTITUTES A DES IGN OR MODEL OR A PLAN OR A PROCESS FOR WHICH AN ACCESS HAS BEEN GIVE N TO AHIPL. 2 TAXABILITY OF RECEIPTS FROM SAFE OF SOFTWARE 2.1 THE LEARNED DRP / DCIT ERRED IN TAXING AN AMOUNT OF RS. 13,84,64,513 RECEIVED BY THE APPELLANT FROM AHIPL I N RELATION TO SALE OF SOFTWARE AS ROYALTY UNDER SECTION 9(1)(VI) OF THE A CT AS WELL AS INDIA- BELGIUM TAX TREATY. 2.2 THE LEARNED DRP / DCIT ERRED M NOT FOLLOWIN G THE ORDER OF THE HON'BLE PUNE TRIBUNAL WHEREIN THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE PAYER (I.E. AHIPL) AND IT IS HELD THAT THE PAYM ENTS TO THE APPELLANT IS NOT NATURE OF ROYALTY AND THUS NOT SUBJECT TO WITHH OLDING TAX IN INDIA. 2.3 THE LEARNED DRP ERRED IN OBSERVING THAT THE APPELLANT IS MERELY STORING THE SOFTWARE IN THE EQUIPMENT AND HENCE, TH E SOFTWARE CANNOT BE HELD TO BE AN INTEGRAL PART OF THE EQUIPMENT. 3 LEVY OF INTEREST UNDER SECTION 234B THE LEARNED DCIT ERRED IN LEVYING INTEREST UNDER SE CTION 234B OF THE ACT. 4. INITIATION OF PENALTY PROCEEDINGS. THE LEARNED DCIT ERRED IN INITIATING PENALTY PROCEE DINGS UNDER SECTION 271(1)(C) OF THE ACT. 5. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHO UT PREJUDICE TO THE OTHER 6. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESEE IS A BELGIUM INCORPORATED AND IS A TAX RESIDENT OF BELGIUM IN TE RMS OF THE INDIA BELGIUM TAX TREATY. THE ASSESEE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION AND DISTRIBUTION OF EXTENSIV E PORTFOLIO OF ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 3 SOLUTIONS, HEALTHCARE, IMAGING EQUIPMENT AND CONSUM ABLES. THE ASSESEE COMPANY DOES NOT UNDERTAKE ANY ACTIVITIES I N INDIA. THE ASSESSEE COMPANY PROVIDES SERVICES/ SUPPORT TO AGFA HEALTHCARE INDIA PVT.LTD. (AHIPL), AN ASSOCIATE ENTERPRISE IN INDIA IN TERMS OF SECTION 92A OF THE ACT, IN RESPECT OF SAP SYSTEM, R EMOTE ACCESS SERVICES AND MAIL AND CALENDARING SERVICES ETC. ON BASIS OF REQUEST BY SPECIFIC USERS OF THE VARIOUS APPLICATIONS, THE ASSESEE COMPANY HAS RECEIVED CROSS CHARGES FOR SUCH INFORMATION AND COMMUNICATION SERVICES [ICS] RENDERED TO AHIPL. FURTHER, THE ASSE SSEE COMPANY IS ALSO SELLING IMAGING EQUIPMENT TO AHIPL. THE SOFTWA RE REQUIRED TO RUN THIS EQUIPMENT ARE ALSO MADE AVAILABLE TO THE C LIENTS. THE COMPANY HAS NOT OFFERED THE RECEIPTS FROM ICS SERVI CES RENDERED TO AHILP AND THE CONSIDERATION RECEIVED FROM SALE OF S OFTWARE IN INDIA TO TAXATION, CLAIMING THAT THESE ARE BUSINESS RECEI PTS OF THE COMPANY AND IN ABSENCE OF ANY PE IN INDIA, THE SAME IS NOT LIABLE TO TAX IN INDIA. THE LD. AO HAS NOT ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND HELD THAT RECEIPTS FROM CROSS CHARGES AND FROM SALE OF SOFTWARE ARE IN THE NATURE OF ROYALTY U/S 9(1)(VI) OF THE AC T, AS WELL AS THE INDIA-BELGIUM TAX TREATY AND HENCE, LIABLE TO TAX I N INDIA IRRESPECTIVE OF THE LOCATION FROM WHERE, THE SERVICES ARE RENDE RED. THE ASSESEE FILED OBJECTIONS BEFORE THE DRP AGAINST THE FINDING S OF THE LD. AO, HOWEVER COULD NOT SUCCEED. THE DRP- 1,(WZ), MUMBAI VIDE ITS DIRECTIONS U/S 144C (5) OF THE I.T.ACT, 1961,DATED 06/08/2018 CONFIRMED THE FINDINGS OF THE LD. AO, IN RESPECT OF CROSS CHARGES AND RECEIPTS FROM SALE OF SOFTWARE FROM AHIPL ARE IN TH E NATURE OF ROYALTY UNDER THE INDIA -BELGIUM TAX TREATY. AGGRIE VED BY THE DRP DIRECTIONS, THE ASSESSEE IN THE APPEAL BEFORE US. ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 4 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.1 OF ASSESEE APPEAL IS TAXABILITY OF RECEIPTS FO R PROVISION OF INFORMATION AND COMMUNICATION SERVICES/CROSS CHARG ES U/S 9(1)(VI) OF THE I.T.ACT, 1961, AS WELL AS THE INDIA-BELGIUM TAX TREATY. THE LD. AR FOR THE ASSESEE, AT THE TIME OF HEARING, SUBMITT ED THAT THIS ISSUE IS COVERED IN FAVOR OF THE ASSESEE BY THE DECISION OF ITAT, MUMBAI L BENCH IN ASSESSEES OWN CASE FOR AY 2014-15 IN ITA NO. 6740/MUM/2017, WHERE UNDER IDENTICAL SET OF FACTS A ND ALSO, ON THE BASIS OF SAME AGREEMENT BETWEEN THE PARTIES, HELD T HAT THE ASSESSEE CONTENTION THAT EXPANDED DEFINITION OF ROY ALTY AFTER INTRODUCTION OF EXPLANATION (4) TO SECTION 9(1)(VI ) WOULD NOT APPLY TO ASSESEE CASE, IN ABSENCE OF CORRESPONDING AMENDMEN T IN ARTICLE 12(3)(A) OF THE INDIA-BELGIUM TAX TREATY SHOULD HAV E BEEN CONSIDERED BY THE AO AND THE DRP AND ACCORDINGLY, SET ASIDE TH E ISSUE TO THE FILE OF THE AO FOR DENOVO ADJUDICATION, AFTER DUE O PPORTUNITY OF BEING HEARD TO THE ASSESEE. THEREFORE, FOR THIS YEAR, FAC TS BEING SIMILAR AND ACCORDINGLY, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD.AO FOR DENOVO ADJUDICATION. 5. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED T HAT THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO FOR DENOVO ADJUDICATION AND ACCORDINGLY, THIS YEAR ALSO, THE ISSUE MAY BE SET A SIDE TO THE FILE OF THE LD.AO. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH, IN LIGHT OF PROVISION OF SECTION 9(1)(VI) AN D NEWLY INSERTED EXPLANATION (4) ALONG WITH ARTICLE 12(3) (A) OF TH E INDIA-BELGIUM TAX ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 5 TREATY AND AFTER CONSIDERING RELEVANT FACTS HAS SET ASIDE THE ISSUE TO THE FILE OF THE LD.AO FOR DENOVO ADJUDICATION. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIALS ON RECORD. IT IS EVIDENT FROM MATERIAL ON RECORD, BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN AGREEMENT THAT THE RECEIPTS FROM ICS IS NOT IN THE NATURE OF FTS AS PER ARTICLE12(3)(B) OF THE INDIA BELGIUM DTAA AS WELL AS SECTION 9(1)(VII) OF THE ACT. THEREFORE, THERE I S NO NEED TO DELIBERATE ON THE ISSUE AS TO WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE FROM ICS IS IN THE NATURE OF FTS. THE ONLY ISSUE WHICH REQUI RES EXAMINATION IS, WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE TOWARD S ICS FROM AHIPL CAN BE TREATED AS ROYALTY UNDER ARTICLE12(3)(A) OF INDIABELGIUM DTAA. IN CASE SUCH PAYMENT DOES NOT COME WITHIN THE AMBIT OF ROYALTY AS DEFINED UNDER ARTICLE 12(3)(A), IT CANNOT BE BROUG HT TO TAX BY TREATING IT AS ROYALTY UNDER SECTION 9(1)(VII) OF THE ACT, SINC E, AS PER SECTION 90(2) OF THE ACT, THE TREATY PROVISIONS BEING MORE BENEFICIA L WILL PREVAIL OVER THE PROVISIONS OF THE ACT. THE TERM ROYALTY HAS BEEN DE FINED UNDER ARTICLE 12(3)(A) OF THE INDIABELGIUM DTAA AS UNDER: OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTI FIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 11. A READING OF THE AFORESAID PROVISION MAKES IT C LEAR THAT THE PAYMENT RECEIVED FOR USE OF OR RIGHT TO USE OF ANY COPYRIGH T OF LITERARY ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, PATE NT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR INFORM ATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE IS TO BE TREATED AS ROYALTY. AS COULD BE SEEN, THE AFORESAID DEFINITION DOES NOT REFER TO TRANSFER OF ANY RIGHT FOR USE OR RIGHT TO USE COMPUTER SOFTWARE. AS PER SECTION 9 OF THE ACT CERTAIN CATEGORIES OF WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. ONE SUCH INCOME AS PER SECTION 9(1)(6) IS ROYALTY. IN CASE OF A NON RESIDENT IF THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PRO PERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF A BUSINESS OR PROFESSION CARRIED OUT IN INDIA OR FOR THE PURPOSE OF MAKING OR EARNING AN Y INCOME FROM ANY SOURCE IN INDIA, IT WILL BE TAXABLE. EXPLANATION2 TO SECTION 9(1)(VI) OF THE ACT DEFINES ROYALTY AS UNDER: EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'R OYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICE NCE) IN RESPECT OF A ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 6 PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SEC RET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TE CHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL ; [(IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB;] (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTR IBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO 25[(IV), (IVA) AN D](V). 12. A READING OF THE DEFINITION OF ROYALTY IN EXPLA NATION2 TO SECTION 9(1)(VI) MAKES IT CLEAR THAT, THOUGH, THE DEFINITIO N OF ROYALTY IS WIDER THAN THE DEFINITION PROVIDED UNDER ARTICLE 12(3)(A) OF T HE DTAA, HOWEVER, IT DOES NOT SPECIFICALLY REFER TO COMPUTER SOFTWARE. H OWEVER, SUBSEQUENTLY, BY FINANCE ACT, 2012, EXPLANATION4 WAS INTRODUCED TO SECTION 9(1)(VI) WITH RETROSPECTIVE EFFECT FROM 1ST JUNE 1976 WHICH READS AS UNDER: EXPLANATION 4.FOR THE REMOVAL OF DOUBTS, IT IS H EREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRA NSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUD ING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH S UCH RIGHT IS TRANSFERRED. 13. THUS, BY VIRTUE OF ABOVE EXPLANATION, THE SCOPE AND AMBIT OF THE TERM ROYALTY WAS FURTHER EXPANDED TO ALSO INCLUDE TRANSF ER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE COMPUTER SOFTWARE IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. IT IS RELEVANT TO OBSERVE, BY REFERRING TO EXPLANATION4 OF SECTION 9(1)(VI) OF THE ACT THE AS SESSING OFFICER HAS CONCLUDED THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM ICS IS IN THE NATURE OF ROYALTY, SINCE, SUCH SERVICES ARE IN RELA TION TO COMPUTER SOFTWARE AND / OR FOR THE USE OF PROCESS OR FOR REN DERING SERVICES IN RELATION TO THOSE ITEMS. NOTABLY, THE AFORESAID EXP LANATION4, THOUGH, WAS INTRODUCED TO SECTION 9(1)(VI) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1ST JUNE 1976, HOWEVER, THERE IS NO SUCH CORRESPOND ING AMENDMENT MADE TO THE DEFINITION OF ROYALTY IN INDIA BELGIUM DTAA THROUGH INTRODUCTION OF A SIMILAR EXPLANATION LIKE EXPLANAT ION4 TO SECTION 9(1)(VI) OF THE ACT. THEREFORE, ASSESSEES CONTENTION THAT I N THE ABSENCE OF A ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 7 PROVISION SIMILAR TO EXPLANATION4 TO SECTION 9(1)( VI) OF THE ACT IN THE INDIABELGIUM DTAA, PAYMENT MADE FOR USE OR RIGHT T O USE OF COMPUTER SOFTWARE CANNOT BE TREATED AS ROYALTY UNDER THE TAX TREATY, REQUIRES TO BE CONSIDERED OBJECTIVELY AND WITH ALL SERIOUSNESS AS IT HAS A CRUCIAL BEARING ON THE ULTIMATE TAXABILITY OF THE AMOUNT RECEIVED T OWARDS ICS. THOUGH, THE AFORESAID CONTENTION WAS RAISED BY THE ASSESSEE BEFORE THE DEPARTMENTAL AUTHORITIES, HOWEVER, THEY HAVE COMPLE TELY IGNORED SUCH CONTENTIONS MADE BY THE ASSESSEE. DECISIONS RELIED UPON BY ASSESSEE AND THEIR APPLICABILITY TO THE DISPUTED ISSUE HAS N OT BEEN CONSIDERED. THIS, IN OUR VIEW, IS IMPROPER AND AGAINST THE PRIN CIPLES OF NATURAL JUSTICE. FURTHER, ON A CAREFUL SCRUTINY OF THE ORDER OF THE DRP WE FIND ITS FINDING ON THE ISSUE OF ROYALTY VISAVIS ARTICLE13(1)(A) OF INDIABELGIUM DTAA TO BE CONTRADICTORY. WHILE DEALING WITH THE TAXABIL ITY OF AMOUNT RECEIVED TOWARDS ICS, THOUGH, THE DRP HAS OBSERVED THAT THE NATURE OF PAYMENT IS ROYALTY EVEN UNDER ARTICLE12(3)(A) OF THE TAX T REATY, HOWEVER, WHILE DEALING WITH THE ISSUE RELATING TO TAXABILITY OF AM OUNT RECEIVED TOWARDS SALE OF SOFTWARE ALONG WITH EQUIPMENT, THE DRP IN P ARA5.10 OF THE ORDER HAS OBSERVED THAT THE DEFINITION OF ROYALTY UNDER T HE INDIABELGIUM DTAA WILL NOT BE APPLICABLE AND THE DEFINITION OF ROYALT Y UNDER THE ACT, AFTER THE AMENDMENT BROUGHT THROUGH FINANCE ACT, 2012, WOULD BE APPLICABLE. THUS, AS PER THE DRPS OWN FINDING, THERE IS A DIST INCTION BETWEEN THE DEFINITION OF ROYALTY UNDER THE ACT AND THE INDIAB ELGIUM DTAA. IN SUCH CIRCUMSTANCES, ASSESSEES CONTENTION THAT THE EXPAN DED DEFINITION OF ROYALTY AFTER INTRODUCTION OF EXPLANATION4 TO SECT ION 9(1)(VI) WOULD NOT APPLY TO ASSESSEES CASE IN ABSENCE OF CORRESPONDIN G AMENDMENT IN ARTICLE 12(3)(A) SHOULD HAVE BEEN CONSIDERED BY TH E ASSESSING OFFICER AND THE DRP KEEPING IN VIEW THE RELEVANT CASE LAWS ON THE ISSUE. HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE DRP HAVE DONE SUCH EXERCISE. IN VIEW OF THE AFORESAID, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE KEEPING IN VIEW OUR OBSERVATI ONS HEREIN ABOVE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE COORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THA T THE ISSUE NEED TO BE RECONSIDERED BY THE LD. AO, IN LIGHT OF THE F INDINGS GIVEN BY TRIBUNAL FOR EARLIER ASSESSMENT YEARS AND HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE LD. AO FOR DENOVO ADJUDICA TION, AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESEE. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO.2 OF ASSESEE APPEAL IS TAXABILITY OF RECEIPTS F ROM SALE OF SOFTWARE AS ROYALTY U/S 9(1)(VI) OF THE I.T.ACT, 1961, AS WE LL AS THE INDIA- ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 8 BELGIUM TAX TREATY. THE LD. COUNSEL FOR THE ASSESSE E, AT THE TIME OF HEARING, SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI L BENCH IN ASSESSEES OWN CASE FOR AY 2014-15 IN ITA NO. 6740/MUM/2017, F OR WHICH THE LD. DR FAIRLY ACCEPTED THAT THE ISSUE IS SQUARELY C OVERED IN FAVOR OF THE ASSESEE. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDER OF THE AUTHORITIES BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2014-15 IN ITA.NO.6740/M UM/2017 AND AFTER CONSIDERING RELEVANT FACTS, HELD THAT PAYMENT RECEIVED BY THE ASSESSEE FROM AHIPL TOWARDS SALE OF SOFTWARE IS NOT IN THE NATURE OF ROYALTY U/S 9(1)(VI),AS WELL AS THE INDIA-BELGIUM T AX TREATY AND HENCE, NOT EXIGBLE TO TAX IN INDIA. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. UNDISPUTEDLY, THE AMOUNT OF ` 11,28,51,401, BROUGHT TO TAX AS ROYALTY WAS RECEIVED BY THE ASSESSEE FROM AHIPL TOW ARDS SALE OF SOFTWARE EMBEDDED WITH THE IMAGING EQUIPMENT / MRI MACHINES FOR OPERATING THEM. IT IS EVIDENT, THE DEPARTMENTAL AUT HORITIES HAVE TREATED THE AMOUNT RECEIVED FROM SALE OF SOFTWARE AS ROYALT Y PRIMARILY FOR THE REASON THAT THE AMOUNT FOR SALE OF SOFTWARE HAS BEE N CHARGED SEPARATELY IN THE INVOICES RAISED. NOTABLY, WHILE EXAMINING TH E NATURE OF THE AFORESAID PAYMENT IN CASE OF AHIPL, THE DISTRIBUTOR OF THE ASSESSEE, IN ASSESSMENT YEAR 200809 TO 201213, THE ASSESSING O FFICER WAS OF THE VIEW THAT THE PAYMENT MADE IS IN THE NATURE OF ROYA LTY, HENCE, REQUIRED DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE ASSESSEE HAVING NOT DEDUCTED TAX AT SOURCE THE ASSESSING OFF ICER PASSED ORDERS UNDER SECTION 201 OF THE ACT RAISING DEMAND AGAINST AHIPL. THE REASONING ON WHICH THE ASSESSING OFFICER CONCLUDED THAT THE PAYMENT MADE BY AHIPL TO THE ASSESSEE IS IN THE NATURE OF R OYALTY ARE IDENTICAL TO THE REASONING ON WHICH THE ASSESSING OFFICER AND TH E DRP HELD THE PAYMENT MADE AS ROYALTY IN CASE OF THE PRESENT ASSE SSEE. WHEN THE DISPUTE ULTIMATELY CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.216 TO 218/PUN./2014, ETC., THE TRIBUNAL, AFTER TAKING INTO CONSIDERATION ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 9 ALL MATERIAL FACTS AND PROVISIONS OF ACT AS WELL AS THE PROVISIONS OF INDIA BELGIUM DTAA VIDE ORDER DATED 31ST MAY 2017 ULTIMAT ELY CONCLUDED THAT THE AMOUNT PAID BY THE AHIPL TO THE ASSESSEE CANNOT BE TREATED AS ROYALTY. THE OBSERVATIONS OF THE TRIBUNAL, PUNE BEN CH, IN THIS REGARD ARE AS UNDER: 18. NOW, THE NEXT QUESTION WHICH ARISES FOR CONSIDE RATION IS, WHETHER THE PART OF PAYMENTS MADE FOR PURCHASE OF E QUIPMENT WOULD ALSO INCLUDE PAYMENT FOR ROYALTY IN RESPECT OF SOFTWARE RECEIVED ALONG WITH THE EQUIPMENT. IN THE INSTANT C ASE, THE AUTHORITIES BELOW HAVE FASTEN THE TAX LIABILITY ON THE ASSESSEE ON THE PRESUMPTION THAT THE PAYMENT TOWARDS THE ACQUIS ITION OF SOFTWARE IS IN THE NATURE OF ROYALTY. SINCE, THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 195 OF THE ACT. THE TERM ROYALTY HAS BEEN DEFINED IN EXPLANATION 2 TO SECTI ON 9(1)(VI) OF THE ACT. THE SAME IS REPRODUCED HERE-IN-BELOW : EXPLANATION 2. CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A L ICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE M ARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNIC AL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL ; (V) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIEN TIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTIO N 44BB; (VI) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTI NG OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TEL EVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBIT ION OF CINEMATOGRAPHIC FILMS ; OR (VII) (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB-C LAUSES (I) TO 76[(IV), (IVA) AND] (V). 19. THE ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL HAD TRANSACTION WITH VENDORS OF AGFA EQUIPMENTS FROM AUSTRALIA, CANADA AND BELGI UM. THE PROVISIONS OF ROYALTY AND FEE FOR TECHNICAL SERVICE IN DTAA BETWEEN INDIA AND ABOVE SAID COUNTRIES IS CONCERNED IS ON SAME LINES. THE TERM ROYALTY HAS BEEN DEFINED IN ARTICLE 12(3)(A) OF DTAA BETWEEN INDIA AND BELGIUM. THE SAME IS REPRODU CED HERE- IN-UNDER : 3. 1[(A) THE TERM 'ROYALTIES' AS USED IN THIS ARTIC LE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERAT ION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITER ARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLANT, SECRET FORMULA OR PRO CESS, OR FOR ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 10 INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE.] A PERUSAL OF THE DEFINITION OF ROYALTY AS DEFINED UNDER THE ACT IS EXHAUSTIVE AS COMPARED TO THE DEFI NITION OF ROYALTIES UNDER ARTICLE 12(3)(A) OF THE DTAA. IT I S A WELL SETTLED LAW THAT WHERE THE PROVISIONS OF DTAA FAVOUR THE AS SESSEE, THE PROVISIONS OF DTAA WOULD OVERRIDE THE PROVISIONS OF THE ACT. 20. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS MA DE PAYMENT FOR ACQUIRING THE RIGHT TO USE SOFTWARE. THE AUTHOR ITIES BELOW HAVE ALSO MADE OBSERVATIONS IN THEIR RESPECTIVE ORDERS A BOUT THE SOURCE CODE OF THE SOFTWARE AND HAVE FURTHER STRETCHED THE SOFTWARES TO EQUATE IT WITH SECRET FORMULA OR SECRET PROCESS, SO AS TO BRING THE TRANSACTION WITH RESPECT TO PURCHASE OF SOFTWARE IN THE PRESENT CASE WITHIN THE AMBIT OF ROYALTY. WE HAVE ALREADY HELD THAT THE SOFTWARE IS EMBEDDED IN THE EQUIPMENT AND IS INEXTR ICABLE LINKED TO THE WORKING OF IMAGING EQUIPMENT, THEREFORE, PAY MENT FOR SOFTWARE CANNOT BE SEPARATED FROM CONSOLIDATED PAYM ENT OF EQUIPMENT. NEVERTHELESS, TO PUT THIS ISSUE IN CLEAR PROSPECTIVE WE WOULD TAKE TO REFER TO THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GALATEA LTD. VS. DEPUTY COM MISSIONER OF INCOME TAX (SUPRA) WHEREIN SIMILAR ISSUE WAS RAISED . THE TRIBUNAL AFTER CONSIDERING THE FACTS OF THE CASE AND CATENA OF JUDGMENTS HELD THAT WHERE SOFTWARE IS PART OF EQUIPMENT THERE IS NO QUESTION FOR SEGREGATING THE PAYMENT FOR SOFTWARE. AND SUCH PAYMENTS DO NOT FALL WITHIN THE AMBIT OF ROYALTY. THE RELEVANT EXTRACT OF THE DECISION OF TRIBUNAL IS REPRODUCED HERE-IN-UNDER : 16. THE FIRST PART OF THE ARGUMENT MADE BY THE LD. COUNSEL FOR TH E ASSESSEE IS THAT THE IMPUGNED CONSIDERATION WAS RECEIVED ON ACC OUNT OF SALE OF MACHINE ALONG WITH REQUISITE SOFTWARE WHICH FORM ED INTEGRAL PART OF MACHINES SOLD BY IT TO THE CUSTOMERS. THE WHOLE DISPUTE AROSE MERELY BECAUSE VALUE OF SOFTWARE WAS SEPARATELY MEN TIONED. BUT, THERE WAS NO SEPARATE TRANSACTION OF SALE OF SOFTWA RE AND, THEREFORE, IT WAS PREDOMINANTLY TRANSACTION OF SALE OF MACHINE AND, THEREFORE, IT COULD NOT HAVE BEEN BROUGHT WITHIN TH E DEFINITION OF ! ' THEREFORE, IN THE ABSENCE OF THERE BEING ANY P.E. O F THE ASSESSEE IN INDIA, THE INCOME ARISING FROM SALE OF MACHINE C OULD NOT HAVE BEEN TAXED IN ITS HANDS IN INDIA. 17. WE HAVE CAREF ULLY ANALYZED THE FACTS OF THE CASE AND ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS COUNTER ARGUMENTS MADE BY T HE LD. DEPARTMENTAL REPRESENTATIVE. THE UNDISPUTED FACTS B EFORE US ARE THAT NONE OF THE CUSTOMERS HAVE PURCHASED ONLY MACH INE OR ONLY SOFTWARE. THERE WAS NO CUSTOMER WHO PURCHASED ONLY SOFTWARE. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION ON VARIOUS PAGES OF THE PAPER BOOK TO ESTABLISH THAT THE MACHINE SOL D BY THE ASSESSEE COULD NOT BE MADE OPERATIONAL OR FUNCTIONA L IN THE ABSENCE OF OPERATING SOFTWARE ALONG WITH THE APPLIC ATION SOFTWARE. THESE FACTS WERE NOT CONTROVERTED BY THE LD. DEPART MENTAL REPRESENTATIVE DURING THE COURSE OF HEARING IN RESP ONSE TO A SPECIFIC QUERY PUT TO HIM BY THE BENCH. IT IS NOTED THAT COMPLETE DETAILS HAVE BEEN GIVEN BY THE ASSESSEE IN THE PAPE R BOOK AT ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 11 PAGE222 AND 224. OUR ATTENTION WAS ALSO DRAWN ON C ERTIFICATE FROM THE ASSESSEE ENCLOSED AT PAGE225 OF THE PAPER BOOK CERTIFYING THAT SOFTWARE SUPPLIED BY THE ASSESSEE T O END USER WAS FOR INTEGRATION WITH THE MACHINE SUPPLIED BY THE AS SESSEE AND THAT THIS SOFTWARE HAD NO OTHER INDEPENDENT USE AS SUCH, EXCEPT TO ENABLE SUCH MACHINE TO FUNCTION. WE HAVE ALSO GONE THROUGH THE END USER LICENSE AGREEMENT (EULA) ENTERED INTO BY T HE ASSESSEE WITH THE CUSTOMERS WHEREIN THERE ARE VARIO US CLAUSES WHICH INDICATE THAT THE SOFTWARE SUPPLIED BY THE AS SESSEE WAS MEANT ONLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKIN G THE SAID MACHINE FUNCTIONAL. CLAUSE 2.1 OF THE AGREEMENT PRO VIDES THAT CUSTOMER IS GRANTED NONEXCLUSIVE, NONTRANSFERABLE LIMITED LICENSE TO USE THE SOFTWARE AND RELATED KNOWHOW ON THE MACHINE FOR THE SOLE PURPOSE OF SCANNING THE INTERNAL / EXT ERNAL FEATURE OF ROUGH DIAMOND AND CREATING A THREE DIMENSIONAL IMAG E OF THESE FEATURES OF ROUGH DIAMOND. CLAUSE 2.2 OF THE AGREEM ENT PUTS CERTAIN RESTRICTIONS UPON THE CUSTOMERS FOR ANY OTH ER USE OF THE SOFTWARE IN ANY OTHER MACHINE. THIS CLAUSE RESTRAIN S THE CUSTOMER FROM DUPLICATING THE SOFTWARE OR MAKING ANY COPIES, MODIFICATIONS, ISOLATING THE SOFTWARE AND MAKING IT AVAILABLE AS A STANDALONE DATA BASE OR PRODUCT, REMOVING ANY PRODUCT IDENTIFICATIO N, COPYRIGHT OR OTHER PROPRIETARY NOTICE FROM THE SOFTWARE OR DECOM PILING, DISASSEMBLING, REVERSE ENGINEERING, OR MAKING ANY O THER ATTEMPT TO RECONSTRUCT OR DISCOVER THE SOURCE CODE, ETC. TH IS CLAUSE CLEARLY LAYS DOWN THAT CUSTOMER SHALL NOT REPRODUCE THE SOF TWARE OR ANY OF THE DOCUMENTATION PROVIDED IN CONNECTION WITH THE S OFTWARE OR RELATED KNOWHOW. IT IS FURTHER NOTED THAT CLAUSE 6. 2 OF THE SAID AGREEMENT LAYS DOWN THAT THE ASSESSEE IS AND SHALL REMAIN SOLE AND EXCLUSIVE OWNER OF THE RIGHT, TITLE AND INTERES T IN THE SOFTWARE AND RELATED KNOW. THIS SOFTWARE CANNOT BE USED BY T HE CUSTOMER EXCEPT FOR THE OPERATION OF THE MACHINE. IT IS FURT HER NOTED BY US THAT THE MACHINE WAS EQUIPPED WITH REQUISITE SECURI TY CONTROLS AND HARDWARE LOCKS TO STOP ANY TYPE OF MISUSE OF SOFTWA RE. CLAUSE 10.2 OF ONE OF THE AGREEMENT AVAILABLE AT PAGE49 I S REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: 10.2 SARIN INDIA ACKNOWLEDGES THAT GALATEA MAY USE SOFTWARE AND/OR H ARDWARE LOCKS OR OTHER PROTECTIVE MECHANISMS TO REGULATE TH E USE OF SOFTWARE. SARIN INDIA SHALL NOT EVADE OR OVERRIDE S UCH SOFTWARE/HARDWARE LOCKS OR PROTECTIVE DEVICES AND S HALL IMMEDIATELY INFORM GALATEA UPON LEARNING THAT ANY U SER HAS DEFEATED SUCH DEVICES. SARIN INDIA AGREES TO COOPER ATE FULLY WITH GALATEA IN ITS EFFORTS TO PROTECT SOFTWARE FRO M UNLAWFUL OR UNAUTHORIZED USE. 18. FROM THE AFORESAID FACTS AND FEATURES OF THE TRANSACTIONS ANALYSED BY US, IT COULD BE CONCLU DED THAT THE CUSTOMER WAS NOT INTERESTED IN THE HARDWARE ALONE O R IN THE SOFTWARE ALONE. HE WAS INTERESTED IN THE SYSTEM AS A WHOLE AND FUNCTIONING OF THE MACHINE. OPERATING SOFTWARE ENAB LE THE MACHINE TO RUN AND THE APPLICATION OF SOFTWARE MADE FUNCTIONING OF THE MACHINE POSSIBLE. IT IS AN UNDISPUTED FACT THAT THE SOFTWARE WHICH WAS LOADED ONTO THE HARDWARE DID NOT HAVE ANY ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 12 INDEPENDENT EXISTENCE AS SUCH. THE SOFTWARE SUPPLIE D WAS OSTENSIBLY AND UNDISPUTEDLY AN INTEGRAL PART OF THE HARDWARE. NOW, SINCE THE HARDWARE AND SOFTWARE CONSTITUTED ONE INT EGRATED SYSTEM, PART OF THE PAYMENT THEREOF CANNOT BE EARMA RKED TOWARDS # # SOFTWARE AS SUCH. THUS, IN OUR CONSIDERED VIEW, THE DOMINANT CHARACTER AND ESSENCE OF THE TRANSACTION WAS SALE O F MACHINE BY THE ASSESSEE. THE SOFTWARE, INDEPENDENTLY, HAD NO V ALUE FOR THE CUSTOMER. HE WAS CONCERNED WITH AS ONLY THE FUNCTIO NING OF THE MACHINE AND BENEFITS OF USE PROVIDED BY MACHINE. 19. THE ONLY ARGUMENT GIVEN BY THE LD. DEPARTMENTAL REPRESENTATIVE TO COUNTER THE SUBMISSIONS OF THE LD . COUNSEL FOR THE ASSESSEE WAS THAT IN THIS CASE, PAYMENT WAS MAD E SEPARATELY FOR THE SOFTWARE AT THE TIME OF SALE OF MACHINE AS WELL AS SUBSEQUENTLY AND THAT SOFTWARE WAS PROVIDED BY EMA IL AND, THEREFORE, SEPARATE TREATMENT SHOULD BE GIVEN TO TH E SOFTWARE. IN OUR CONSIDERED OPINION, ARGUMENT OF THE LD. DEPARTM ENTAL REPRESENTATIVE WOULD NOT BE SUSTAINABLE UNDER THE L AW. THE DOMINANT AND FUNDAMENTAL CHARACTER OF THE TRANSACTI ON SHALL NOT BE ALTERED BECAUSE OF THESE TWO FEATURES ONLY. THE BREAKUP OF INVOICE VALUE OF HARDWARE AND SOFTWARE MAY BE AS A RESULT OF SOME OTHER LEGAL REQUIREMENT OR AS A MATTER OF CONV ENIENCE OR AN AGREEMENT BETWEEN BUYER AND SELLER. IT HAS BEEN SUB MITTED THAT SEPARATE VALUES WERE GIVEN FOR THE PURPOSE OF PROPE R ASSESSMENT OF CUSTOM DUTY TO BE LEVIED AT THE TIME OF IMPORTS OF THE MACHINES. FURTHER, SOFTWARE HAS BEEN SUPPLIED SEPARATELY BY E MAIL FOR VARIOUS SECURITY REASONS AND TO ENABLE THE CUSTOMER TO HAVE THE BENEFITS OF UPDATED TECHNOLOGIES. SIMILARLY, SEPARA TE PAYMENTS HAVE BEEN MADE AT THE TIME OF SALE AND SUBSEQUENTLY BY CUSTOMER AS A MATTER OF TERMS BETWEEN BOTH THE PARTIES KEEPI NG IN VIEW VARIOUS FACTORS SUCH AS FINANCIAL AND ADMINISTRATIV E CONVENIENCE AND COMMERCIAL EXPEDIENCY. THE DOMINANT AND ESSENTI AL CHARACTER OF THE TRANSACTION WAS SALE OF MACHINE BY THE ASSESSEE AND PURCHASE OF THE SAME BY THE CUSTOMER, AND IT SH ALL REMAIN THE SAME WITH OR WITHOUT THESE TWO FEATURES. 21. THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF HITT HOLLAND INSTITUTE OF TRAFFIC TECHNOLOGY B.V. VS. DEPUTY DIR ECTOR OF INCOME TAX (SUPRA) WHILE DEALING WITH SOMEWHAT SIMILAR ISS UE HAS HELD THAT WHERE SOFTWARE IS IMBEDDED IN EQUIPMENT SUPPLI ED FOR MERE PURPOSE OF OPERATING EQUIPMENT, IT IS NOT A CASE GI VING INDEPENDENT RIGHT TO USE SOFTWARE, AMOUNT PAID FOR SUPPLY OF SOFTWARE IS NOT TAXABLE IN INDIA AS ROYALTY U/S. 9(1)(VI) OF THE ACT. 22. THUS, IN VIEW OF THE FACTS OF THE CASE, DOCUMEN TS ON RECORD AND THE VARIOUS DECISIONS DISCUSSED ABOVE, WE ARE O F THE CONSIDERED VIEW THAT THE SOFTWARE IS IMBEDDED IN TH E IMAGING EQUIPMENT AND INSEPARABLE PART OF HARDWARE. THE SOF TWARE WITHOUT THE EQUIPMENT AND THE EQUIPMENT WITHOUT THE SOFTWAR E CANNOT PUT TO USE INDEPENDENTLY. THE SOFTWARE AND THE MACHINE IS CUSTOMER SPECIFIC AND IS LICENSED TO THE END USER. UNDER SUC H CIRCUMSTANCES THERE IS NO QUESTION OF SEGREGATING ANY PART OF CON SIDERATION PAID ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 13 FOR EQUIPMENT AND THE SOFTWARE. ACCORDINGLY, THE GR OUNDS RAISED BY THE ASSESSEE IN APPEALS ARE ALLOWED. OUR VIEW IS FURTHER FORTIFIED BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ZTE CORPORATION ( SUPRA) HAS HELD : 22. .THE SUPPLIES MADE (OF THE SOFTWARE) ENABL ED THE USE OF THE HARDWARE SOLD. IT WAS NOT DISPUTED THAT WITH OUT THE SOFTWARE, HARDWARE USE WAS NOT POSSIBLE. THE MERE FACT THAT S EPARATE INVOICING WAS DONE FOR PURCHASE AND OTHER TRANSACTI ONS DID NOT IMPLY THAT IT WAS ROYALTY PAYMENT. IN SUCH CASES, T HE NOMENCLATURE (OF LICENSE OR SOME OTHER FEE) IS INDETERMINATE OF THE TRUE NATURE. NOR IS THE CIRCUMSTANCE THAT UPDATES OF THE SOFTWAR E ARE ROUTINELY GIVEN TO THE ASSESSEE'S CUSTOMERS. THESE FACTS DO N OT DETRACT FROM THE NATURE OF THE TRANSACTION, WHICH WAS SUPPL Y OF SOFTWARE, IN THE NATURE OF ARTICLES OR GOODS. THIS COURT IS ALSO NOT PERSUADED WITH THE SUBMISSION THAT THE PAYMENTS, IF NOT ROYAL TY, AMOUNTED TO PAYMENTS FOR THE USE OF MACHINERY OR EQUIPMENT. SUC H A SUBMISSION WAS NEVER ADVANCED BEFORE ANY OF THE LOW ER TAX AUTHORITIES; MOREOVER, EVEN IN ERICSON (SUPRA), A S IMILAR PROVISION EXISTED IN THE DTAA BETWEEN INDIA AND SWEDEN. 23. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE CASE LAWS DISCUSSED ABOVE WE HOLD THAT IN THE PAYMENT MADE FO R PURCHASE OF IMAGING EQUIPMENT THERE IS NO ELEMENT OF PAYMENT OF ROYALTY. SINCE, THERE WAS NO PAYMENT OF ROYALTY, THERE IS NO QUESTION OF DEDUCTING WITHHOLDING TAX BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. AS A COROLLARY TO OUR ABOVE FINDINGS THE PROCEEDINGS U/S. 201(1) AND (1A) ARE LIABLE TO BE Q UASHED. 20. FOLLOWING THE AFORESAID DECISION, THE TRIBUNAL, WHILE DECIDING THE IDENTICAL ISSUE IN CASE OF PAYER AHIPL FOR ASSESSME NT YEAR 201314 AND 201415 IN ITA NO.2465 & 2466/PUN./2016, HELD THAT THE AMOUNT PAID BY AHIPL TO THE ASSESSEE FOR SALE OF SOFTWARE IS NOT I N THE NATURE OF ROYALTY. ONCE IT WAS HELD BY THE TRIBUNAL IN CASE OF THE PAY ER THAT THE PAYMENT MADE TO THE ASSESSEE TOWARDS SALE OF SOFTWARE IS NO T IN THE NATURE OF ROYALTY, THAT TOO, FOR THE VERY SAME ASSESSMENT YEA R, IT CANNOT BE TREATED AS ROYALTY IN CASE OF THE ASSESSEE, AS THE PAYMENT RELATES TO THE VERY SAME TRANSACTION. THEREFORE, IN OUR CONSIDERED OPIN ION, THE DECISION OF THE TRIBUNAL IN CASE OF AHIPL (SUPRA) COVERS THE IS SUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE AFORESAID DECI SION OF THE TRIBUNAL, PUNE BENCH, WE HOLD THAT THE PAYMENT RECEIVED BY TH E ASSESSEE FROM AHIPL TOWARDS SALE OF SOFTWARE IS NOT IN THE NATURE OF ROYALTY, HENCE, NOT TAXABLE. THIS GROUND IS ALLOWED. 10. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEAR,WE ARE OF THE CONSIDERED VIEW THAT AMOUNT RECEIVED FROM SALE OF SOFTWARE IS NOT IN THE NATURE OF ROYALTY WITHIN THE MEANING OF DEFINATION OF ROYALTY ITA NO.6921/MUM/2018 AGFA HEALTHCARE NV 14 AS DEFINED SECTION 9(1)(VI) OF THE I.T.ACT, 1961, A S WELL AS THE INDIA- BELGIUM TAX TREATY AND HENCE, NOT EXIGBLE TO TAX I N INDIA. HENCE, WE DIRECT THE LD.AO TO DELETE ADDITIONS MADE TOWARDS A MOUNT RECEIVED FROM SALE OF SOFTWARE. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 /11 /2019 SD/- ( C.N.PRASAD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 25/11/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//