LUCENT TECHNOLOGIES GRL LLC, MUMBAI V. ADDL DIT (IT) RG 4, MUMBAI

ITA 7004/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71043 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 12-06-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARAG VYAS
• Keywords: Double taxation relief; Permanent establishment; Initiation of penalty proceedings; Right to appeal
• Section: 234B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NOS. 7001 TO 7004/MUM/2010 (ASSESSMENT YEARS: 2003-04 TO 2005-06 & 2007-08)) M/S. LUCENT TECHNOLOGIES GRL LLC C/O PRICEWATERHOUSE COOPERS PWC HOUSE, 4TH FLOOR GURU NANAK ROAD ROADBANDRA (W), MUMBAI 400050 VS. ADDL. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION RANGE-4 SCINDIA HOUSE, MUMBAI PAN AABCL3902G APPELLANT RESPONDENT APPELLANT BY: SHRI MADHUR AGARWAL RESPONDENT BY: SHRI PARAG VYAS DATE OF HEARING: 16.04.2018 DATE OF PRONOUNCEMENT: 02.05.2018 O R D E R PER BENCH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE ASSESSING OFFICER FOR THE CONCERNED ASSESSMENT YEARS UNDER SECTIONS 143(3)/144C R.W.S. 147 OF INCOME TAX ACT (HEREINAFT ER THE ACT). 2. THE COMMON GROUNDS RAISED BY THE ASSESSEE READ AS U NDER: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITIONAL DIRECTOR OF INCOME TAX (INTERNA TIONAL TAXATION), RANGE - 4, MUMBAI (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') HAS ERRED IN COMPUTING THE INCOME OF T HE APPELLANT AT RS.30,72,21,521 AND RAISING A CONSEQUENT TAX DEM AND OF RS.6,45,16,519 AND INTEREST DEMAND OF RS.10,01,61,8 95 FOR AY 2003-04, WHILE ISSUING A SINGLE ASSESSMENT ORDER FO R AY 2003- 04, AY 2004-05, AY 2005-06 AND AY 2007-08 DATED 19 AUGUST 2010 AND THEREBY NOT ACCEPTING THE APPELLANT'S CLAI M FOR REFUND OF RS.4,60,83,230/- ALONGWITH INTEREST. TAXABILITY OF INCOME 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DISPUTE RESOLUTION PANEL (HEREIN AFTER ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 2 REFERRED TO AS 'THE DRP') HAVE ERRED IN HOLDING THA T THE AMOUNTS RECEIVED BY THE APPELLANT FROM SUPPLY OF SOFTWARE T O RELIANCE COMMUNICATIONS LIMITED (PREVIOUSLY KNOWN AS RELIANC E INFOCOMM LIMITED) (HEREINAFTER REFERRED TO AS 'RELI ANCE') ARE 'ROYALTY' IN NATURE UNDER THE PROVISIONS OF THE ACT AND UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT BETWEEN INDIA AND USA (HEREINAFTER REFERRED TO AS 'DTAA') A ND THUS LIABLE TO TAX IN INDIA. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN HO LDING THAT LUCENT TECHNOLOGIES HINDUSTAN PRIVATE LIMITED BECOM ES A PERMANENT ESTABLISHMENT (HEREINAFTER REFERRED TO AS 'PE') FOR THE APPELLANT IN INDIA. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN HO LDING THAT THE SALE OF SOFTWARE IS EFFECTIVELY CONNECTED TO TH E PE OF THE APPELLANT IN INDIA. 5. WITHOUT PREJUDICE TO THE GROUNDS 2, 3 AND 4 AB OVE, THE ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN NOT HOLDING T HAT THE PAYMENTS RECEIVED BY THE APPELLANT ARE NOT 'ROYALTY ' IN NATURE AND THERE IS NO PE OF THE APPELLANT IN INDIA AND AC CORDINGLY, THE RECEIPTS OF THE APPELLANT ARE NOT TAXABLE IN INDIA. ATTRIBUTION OF INCOME 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN CONSIDERING TH AT ENTIRE RECEIPTS FROM SUPPLY OF SOFTWARE TO RELIANCE ARE AT TRIBUTABLE TO THE PE (AS MENTIONED IN GROUND 3 ABOVE) AND TAXABLE AS PER ARTICLE 12(6) READ WITH ARTICLE 7(3) OF THE DTAA, T HEREBY TAXING THE ENTIRE RECEIPTS FROM SUPPLY OF SOFTWARE UNDER S ECTION 44D READ WITH SECTION 115A(1)(B)(A) OF THE ACT. 7. WITHOUT PREJUDICE TO GROUND 6 ABOVE (WHILE ASS UMING BUT NOT ACCEPTING THE EXISTENCE OF A PE IN INDIA), THE DRP AUTHORITIES OUGHT TO HAVE DIRECTED THE LEARNED AO AND CONSEQUEN TIALLY, THE LEARNED AO OUGHT TO HAVE PROCEEDED TO DETERMINE THE INCOME ATTRIBUTABLE TO THE OPERATIONS IN INDIA AND THEREAF TER, COMPUTE THE PROFITS ATTRIBUTABLE TO SUCH INCOME OF THE ALLE GED PE IN INDIA (AS THE ENTIRE RECEIPTS FROM THE SALE OF SOFTWARE A RE NOT TAXABLE IN INDIA). 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN TA KING A WITHOUT PREJUDICE ARGUMENT THAT IN THE EVENT AT ANY APPELLATE LEVEL, PROVISIONS OF ARTICLE 12(6) ARE NOT CONSIDER ED TO BE APPLICABLE, THEN THE RECEIPTS FROM SUPPLY OF SOFTWA RE TO RELIANCE IS TO BE TAXABLE UNDER ARTICLE 12(1)/(2) OF THE DTA A. ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 3 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN TA KING A WITHOUT PREJUDICE ARGUMENT THAT IN THE EVENT IT IS HELD THAT WHERE THE RECEIPTS FROM SUPPLY OF SOFTWARE TO RELIANCE IS NOT 'ROYALTY' IN NATURE, THE BUSINESS PROFITS OF THE APPELLANT ARE T O BE COMPUTED ON THE BASIS OF THE ACTIVITIES OF THE PE IN INDIA T HEREBY TAXING THE SOFTWARE RECEIPTS ON NET BASIS IN INDIA. 10. WITHOUT PREJUDICE TO THE ABOVE, THE DRP AUTHORI TIES HAVE ERRED AND CONSEQUENTIALLY, THE IN ARBITRARILY ESTIMATING THAT 80% OF THE ACTIVITIES ARE CARRIED OUT BY THE PE IN INDIA. FURT HER THE DRP AUTHORITIES HAVE ERRED IN ESTIMATING AN EXTREMELY H IGH NET PROFIT RATE OF 40% ON THEIR OWN SURMISES AND CONJECTURES A ND THE LEARNED AO HAS ERRED IN CONSEQUENTIALLY GIVING EFFE CT TO THE DIRECTIONS OF THE DRP AUTHORITIES THEREBY RESULTING IN COMPUTING THE PROFITS ATTRIBUTABLE TO THE PE @ 32%, WHICH IS VERY HIGH AS COMPARED TO THE ACTUAL ACTIVITIES CARRIED OUT IN IN DIA IN RELATION TO THE SUPPLY OF SOFTWARE. 11. WITHOUT PREJUDICE TO THE ABOVE, THE DRP AUTHOR ITIES HAVE ERRED IN NOT APPRECIATING THAT ALL THE CRITICAL ACTIVITIES I N RELATION TO THE SALE OF SOFTWARE WERE CARRIED ON BY THE APPELLANT O UTSIDE OF INDIA AND ALL RISKS RESIDED OUTSIDE OF INDIA AND TH E LEARNED AO HAS ERRED IN CONSEQUENTIALLY GIVING EFFECT TO THE D IRECTIONS OF THE DRP AUTHORITIES THEREBY RESULTING IN HIGHER AMOUNT OF PROFITS BEING ATTRIBUTED TO THE PE IN INDIA. 12. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E IN LAW, THE DRP AUTHORITIES AND CONSEQUENTIALLY, THE LEARNED AO HAV E ERRED IN NOT CONSIDERING AND NOT TAKING COGNIZANCE OF THE PROFIT ATTRIBUTION STUDY FILED BEFORE THE DRP TO SUBSTANTIATE THE PROFIT ATT RIBUTION RATIO. 13. NON-GRANTING OF TDS CREDIT - I. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE DRP HAS ERRED IN NOT DIRECTING AND CONSEQUENTLY, TH E LEARNED AO HAS ERRED IN NOT GRANTING CREDIT OF TAXES DEDUCTED OF RS.4,60,83,230 BASED ON ORIGINAL TDS CERTIFICATES S UBMITTED ALONGWITH RETURN OF INCOME FOLLOWING THE PROVISIONS OF SECTION 199 OF THE ACT. II. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT CONTENDS T HAT IF THE CREDIT OF TDS IS NOT GRANTED TO THE APPELLANT OF RS .4,60,83,230, THE AMOUNT RECEIVED BY THE APPELLANT (WHICH IS NET OF TDS) IS TO BE CONSIDERED AS THE INCOME OF THE APPELLANT AND NO T THE GROSS RECEIPTS AS DISCLOSED BY THE APPELLANT IN THE RETUR N OF INCOME FILED. LEVY OF INTEREST 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN LEVYING INTERE ST UNDER SECTION 234A OF THE ACT. ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 4 15. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN LEVYING INTERE ST UNDER SECTION 234B OF THE ACT. 16. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN DIRECTING TO L EVY INTEREST UNDER SECTION 234D OF THE ACT IF IT IS HELD AT ANY APPELLATE LEVELS THAT INTEREST UNDER SECTION 234A OR 234B OF THE ACT IS NOT LEVIABLE. PENALTY 17. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN INITIATING PEN ALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271 (1)(C) OF THE ACT. 3. THESE APPEALS WERE EARLIER DECIDED BY THIS TRIBUNAL VIDE ORDER DATED 06.09.2013. THE TRIBUNAL HAS DECIDED THESE APPEALS AS UNDER: - ITA NOS.7001 TO 7004/ M/10. LUCENT TECHNOLOGIES GR L LLC 51. THESE APPEALS PERTAIN TO LUCENT TECHNOLOGIES, GRL LLC. AS BRIEFLY STATED ABOVE, THE ISSUE IN THESE APPEALS IS WITH REFERENCE TO THE TAXABILITY OF THE AMOUNTS RECEIVED FROM SUPPLY OF SOFTWARE TO RELIANCE. THE AO HELD THE SAME AS ROYALTY IN NATURE AND IN THE ALTERNATE, ALSO CONSIDERED THAT THERE IS A PE IN IN DIA AND SO THE BUSINESS PROFITS ARE ATTRIBUTABLE TO THE PE. ALONG WITH THE ABOVE TWO ISSUES THERE ARE ISSUES ON NON-GRANTING OF TDS CRED ITED, LEVY OF INTEREST ALSO. 52. THE ISSUE OF ROYALTY WAS CONSIDERED ABOVE IN D ETAIL AND CONSEQUENT TO THE FINDINGS THEREIN, IT IS CONSIDERE D THAT AMOUNTS PAID BY RELIANCE FOR SUPPLY OF SOFTWARE UNDER A LICENCE AGREEMENT IS TO BE CONSIDERED AS ROYALTY UNDER THE PROVISIONS OF THE A CT AND ALSO UNDER DTAA AND LIABLE TO TAX IN INDIA. ACCORDINGLY, THE G ROUNDS RAISED BY LUCENT FROM GROUND NO.2 TO 5 ARE REJECTED. 53. THE NEXT ISSUE TO BE CONSIDERED IS ATTRIBUTION OF BUSINESS PROFIT TO THE PE. VIDE PARA 4.18 OF THE ORDER OF THE AO FOR T HE IMPUGNED YEAR, THE AO GAVE A FINDING THAT PAYMENT MADE FOR SOFTWAR E WOULD BE TREATED AS ROYALTY PAYMENTS AND NECESSARY TAX RATE S HAVE BEEN MENTIONED IN THE TABLE. FURTHER, CONSIDERING THE AG REEMENTS ENTERED BY RELIANCE WITH LUCENT GROUP THE AO WAS OF THE OPI NION THAT THERE EXISTED AN AGENCY PE. VIDE PARA 5.8 OF THE ORDER TH E AO ALSO CONSIDERED THAT IN CASE IT IS HELD THAT ASSESSEES INCOME IS NOT TAXABLE AS ROYALTY, THE ASSESSEES BUSINESS PROFITS HAVE TO BE WORKED OUT IN VIEW OF IT HAVING A PE IN INDIA. WE HAVE ALR EADY HELD THAT PAYMENTS MADE BY RELIANCE HAVE TO BE CONSIDERED AS ROYALTY AND ACCORDINGLY THE SAME ARE TO BE TAXABLE AS ROYALTY O NLY. THEREFORE, THERE IS NO NEED TO CONSIDER THE SAME AS BUSINESS P ROFITS. HOWEVER, THE ISSUE OF PE HAS TO BE DECIDED, AS EXISTENCE OF PE MAKES BUSINESS ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 5 PROFIT TAXABLE IN INDIA. THEREFORE, IT IS NECESSARY TO GIVE A FINDING ON THE EXISTENCE OF PE TO THE ASSESSEE LUCENT. 54. THE AO INVOKING PROVISIONS OF ARTICLE-5 OF DTA A, WAS OF THE OPINION THAT AN AGENCY PE IS COMING INTO PICTURE AS SUBSTANTIVE FUNCTIONS OF NEGOTIATIONS, ENTERING INTO CONTRACT, STOCKING OF GOODS OR MERCHANDISING IS BEING DONE BY INDIA ENTERPRISE I.E ., LTHPL. HE REFERRED TO VARIOUS TERMS OF AGREEMENT ENTERED BETW EEN THE PARTIES PARTICULARLY THE ASSIGNMENT AND ASSUMPTION AGREEMEN T, INCLUDING THE SCOPE OF SERVICES FOR MAINTENANCE OF SOFTWARE ENTER ED BY LTHPL. THE AO WAS OF THE OPINION THAT IN THIS CASE, NOT ONLY O RIGINAL AGREEMENT HAS BEEN ENTERED INTO BY THE INDIAN COMPANY BUT SER VICES RELATING TO MAKING SOFTWARE OPERATION OR WARRANTIES OR MAINTENA NCE WERE ALSO BEING DONE BY LTHPL ONLY. IN ADDITION TO THAT TERMS OF THE AGREEMENTS, THE AO ALSO RELIED ON DOCUMENTS FOUND I N THE COURSE OF SURVEY IN THE PREMISES OF ALCATEL LUCENT INTERNATIO NAL LTD. (GOT MERGED ENTITY OF LTHPL) MORE PARTICULARLY WITH RESPECT TO LETTER OF AGREEMENT DATED 06.09.2008 BETWEEN GROUP CONCERNS WITH RELIAN CE COMMUNICATIONS REGARDING RESTRUCTURE OF PAYMENT MIL E STONE. THE AO ULTIMATELY CONCLUDED THAT THERE EXISTED AN AGENCY P E AND ACCORDINGLY, SINCE ASSESSEE HAS A PE IN INDIA, THE BUSINESS PROFITS ARE TAXABLE AND WORKED OUT PROFITS AT 32% OF THE TO TAL RECEIPTS. 55. IT WAS THE SUBMISSION OF THE ASSESSEE THAT LTH PL WAS ACTING INDEPENDENTLY AND ASSESSEE HAS NO AGENCY AGREEMENT OR NO BUSINESS CONNECTION IN INDIA EXCEPT SUPPLY OF SOFTWARE. IT W AS ALSO FURTHER SUBMITTED THAT NO SERVICE PERSONNEL CAME TO INDIA S O AS TO COME UNDER SERVICE PE. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON ARTICLE-5 OF THE DTAA AND DECISION OF CO-ORDINATE B ENCH IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC. VS. ADIT (104 ITD 34)(DEL.) TO SUBMIT THAT MERE USE OF SOFTWARE FOR THE PURPOSE OF BUSINESS IN INDIA NEED NOT LEAD TO AN AGENCY PE AS ASSESSEE WAS NOT R ENDERING ANY SERVICE IN INDIA NOR LTHPL IS AUTHORIZED TO DEAL WI TH OUTSIDERS ON BEHALF OF ASSESSEE LUCENT. FURTHER, IT WAS SUBMITTE D THAT THE CO- ORDINATE BENCH IN THE CASE OF LUCENT TECHNOLOGIES I NTERNATIONAL INC. VS. DCIT, NON-RESIDENT CIRCLE (28 SOT 98) CONSIDERE D THE FACTS IN THE CASE TO HOLD THAT THERE IS A SERVICE PE IN THAT CAS E. IT WAS SUBMITTED THAT MERE EXISTENCE OF A PE TO A GROUP COMPANY DOES NOT LEAD TO A FINDING THAT THE ASSESSEE ALSO AS A PE IN INDIA. IT WAS FURTHER SUBMITTED THAT AOS RELIANCE ON A DOCUMENT I.E., SU BSEQUENT RESTRUCTURED AGREEMENT FOR PAYMENT BY THE GROUP COM PANIES DOES NOT INDICATE THAT ANY ONE OF THEM IS AUTHORIZED TO ENTE R INTO CONTRACT ON BEHALF OF THE ASSESSEE LUCENT AND FURTHER, AGREEMEN T WAS DATED 06.09.2008 DOES NOT PERTAIN TO ANY OF THE IMPUGNED ASSESSMENT YEARS. NOTHING WAS BROUGHT ON RECORD BY THE REVENUE THAT THERE IS A PE EXCEPT RELYING ON THE SO CALLED AGREEMENT WHICH WAS ENTERED ON A PRINCIPLE TO PRINCIPLE BASIS. 56. THE LD. COUNSEL HOWEVER RELIED ON THE ORDERS TH AT THE AO AS SUPPORTED BY DRP. IT WAS FURTHER SUBMITTED THAT ASS ESSEE CHOSE NOT TO FILE RETURN AFTER TDS WAS MADE AND THEREFORE, SI NCE PROCEEDINGS ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 6 ARE INITIATED UNDER SECTION 148 ASSESSEE CAN NOT SE EK ANY BENEFIT IN THE PROCEEDINGS INITIATED FOR THE BENEFIT OF THE RE VENUE . HE RELIED ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF K. SUDHAKAR S. SHANBHAG VS ITO (241 ITR 865) FOR THE P ROPOSITION OF DOCTRINE OF ELECTION. 57. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN T HE CASE OF LUCENT TECHNOLOGIES INTERNATIONAL INC. (28 SOT 98) THE CO- ORDINATE BENCH AT DELHI CONSIDERED THE FACTS AND HELD AS UNDER :- THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE-CO MPANY AND THE INDIAN COMPANY, ESCOTEL, AS ALSO THE AGREEMENT ENTERED INTO BETWEEN ESCOTEL AND THE INDIAN SUBSIDIARY, LTIL SHO WED THAT THE AGREEMENTS WERE FOR TWO DIFFERENT PURPOSES. THE AGR EEMENT BETWEEN ESCOTEL AND THE ASSESSEE WAS FOR THE SUPPLY OF THE HARDWARE AND SOFTWARE; THE AGREEMENT BETWEEN ESCOTE L AND LTIL WAS FOR COMMISSIONING, INSTALLATION AND OPERATIONS. HOWEVER, BOTH THE AGREEMENTS PROVIDED FOR THE TURNKEY FUNCTI ONING OF THE PROJECT OF THE GSM NETWORK. THEREFORE, BY ENTERING INTO THE CONTRACT WITH BOTH, THE ASSESSEE AND LTIL, ESCOTEL HAD MADE BOTH THE ASSESSEE AND LTIL RESPONSIBLE FOR THE TURNKEY C OMPLETION OF THE GSM PROJECT, INDIVIDUALLY AND SEVERELY. THUS, I F EITHER ONE WOULD BREAK ITS TERMS AND CONDITIONS OF THE AGREEME NT WITH ESCOTES, THE OTHER WOULD BE RESPONSIBLE FOR ITS COM PLETION. THUS, CONSORTIUM OR PARTNERSHIP HAD BEEN CREATED BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDIARY, LTIL. WITH THAT SITUATIO N, THE NEXT QUESTION FOR CONSIDERATION AROSE AS TO WHETHER EITH ER THE ASSESSEE OR ITS SUBSIDIARY, LTIL COULD COMPLETE THE CONTRACT WITH ESCOTEL ON A TURNKEY BASIS WITHOUT THE ASSISTANCE OF THE OTHER . OBVIOUSLY, THE ASSESSEE WAS TO SUPPLY THE HARDWARE AND THE SOFTWAR E AND LTIL WAS TO DO THE INSTALLATION, TESTING, COMMISSIONING AND BRINGING UP TO OPERATIONAL STAGE THE TURNKEY PROJECT. IF THE AS SESSEE DID NOT PROVIDE THE HARDWARE AND THE SOFTWARE, IT WOULD BE THE DUTY OF LTIL TO PROVIDE THE REQUISITE HARDWARE AND THE SOFT WARE FOR THE COMPLETION OF THE TURNKEY PROJECT. SIMILARLY, IF LT IL DID NOT COMPLY WITH ITS DUTIES OF COMMISSIONING, INSTALLATION, TES TING AND BRINGING UP TO OPERATIONAL STAGE THE TURNKEY PROJECT, SUCH R ESPONSIBILITY WOULD REST ON THE SHOULDERS OF THE ASSESS. THERE WA S NO DISPUTE IN THAT THE ASSESSEE HAD COMPLETED PART OF ITS CONT RACT, I.E., THE SUPPLY OF THE HARDWARE AND THE SOFTWARE. THE INSTAL LATION, COMMISSIONING, TESTING AND BRINGING UP TO OPERATION AL STATE OF THE HARDWARE AND THE SOFTWARE SUPPLIED BY THE ASSESSEE HAD BEEN UNDERTAKEN BY THE INDIAN SUBSIDIARY, LTIL. FOR SAID PURPOSE, LTIL HAD ALSO TAKEN THE ASSISTANCE OF THE EMPLOYEES OF T HE AFFILIATES OF THE ASSESSEE. THUS, THE PARENT COMPANY, BEING THE A SSESSEE HAD MADE PERSONNEL AVAILABLE TO THE LTIL, THE SUBSIDIAR Y IN FORM OF THE EMPLOYEES OF THE AFFILIATES OF THE ASSESSEE AT CERT AIN REMUNERATION. FURTHER, A PERUSAL OF THE AGREEMENT B ETWEEN ESCOTEL AND THE ASSESSEE CLEARLY SHOWED THAT THE WA RRANTY PROVIDED BY THE ASSESSEE-COMPANY WAS IN RELATION TO THE DEFECTS ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 7 IN THE HARDWARE. THAT WARRANTY CLAUSE IN IDENTICAL FORM WAS ALSO FOUND IN THE AGREEMENT ENTERED INTO BETWEEN ESCOTEL AND LTIL. NORMALLY, THE WARRANTY FOR A PARTICULAR PRODUCT TO BE SUPPLIED BY ONE PERSON IS THE RESPONSIBILITY OF THAT PERSON ALO NE, BUT IN THE INSTANT CASE, THAT BURDEN WAS ALSO SHIFTED TO THE S UBSIDIARY, BEING LTIL. THOUGH LTIL HAD CERTIFIED THAT IT DID NOT KEE P ANY SPARES ON BEHALF OF THE ASSESSEE FOR THE EQUIPMENTS SUPPLIED BY THE ASSESSEE UNDER THE CONTRACT WITH ESCOTEL, YET THE F ACT THAT LTIL HAD ALSO ASSUMED THE RESPONSIBILITIES OF THE WARRAN TY IN REGARD TO THE HARDWARE SUPPLIED BY THE ASSESS, AS ALSO THE RE SPONSIBILITY TO REPLACE THE SAME WITHIN THE PERIOD SPECIFIED IN THE SUPPORT CONTRACT BETWEEN ESCOTEL AND LTIL CLEARLY SHOWED TH AT THE SUBSIDIARY, LTIL WAS ALSO ACTING ON BEHALF OF THE A SSESSEE. A PERUSAL OF ARTICLE 5(2)(1) OF THE DTAA BETWEEN INDI A AND THE USA CLEARLY SHOWS THAT IT IS NOT ONLY THE EMPLOYEES THR OUGH WHOM IF SERVICES ARE PROVIDED, THE PE IS TO SAID TO COME IN TO EXISTENCE, IT ALSO INCLUDES OTHER PERSONNEL. OBVIOUSLY, THE TERM OTHER PERSONNEL HAS TO BE READ WITH REFERENCE TO THE EAR LIER WORDS, AS PROVIDED IN THE SAID ARTICLE 5(2)(1). THE OTHER PER SONNEL SPECIFIED WOULD BE THE PERSONS OVER WHOM THE ENTERPRISE WOULD BE HAVING A CONTROL. IN THE INSTANT CASE, UNDISPUTEDLY, EMPLOYE ES OF THE AFFILIATES OF THE ASSESSEE HAD BEEN EMPLOYED THROUG H LTIL FOR PROVIDING THE SERVICES OF INSTALLATION, COMMISSIONI NG, TESTING AND BRINGING UP TO OPERATIONAL STAGE OF THE HARDWARE AN D THE SOFTWARE SOLD BY THE ASSESSEE TO ESCOTEL THROUGH ITS CONTRAC T IN REGARD TO GSM PROJECT WHICH WAS TO BE COMPLETED ON A TURNKEY BASIS. THOSE EMPLOYEES OF THE AFFILIATES OVER WHOM THE ASSESSEE HAD A CONTROL WOULD FALL WITHIN THE TERM OTHER PERSONNEL AND, C ONSEQUENTLY, IT WOULD HAVE TO BE HELD THAT A PE DID EXIST AS PER TH E INCLUSIVE TERM AS PROVIDED IN ARTICLE 5(2)(1) OF THE DTAA. A COPY OF THE RETURNS OF THE AFORESAID EMPLOYEES ALSO CLEARLY SHOWED THAT TH EY HAD BEEN STAYING IN INDIA FOR MORE THAN 90 DAYS WITHIN THE 1 2 MONTH PERIOD FROM APRIL, 1996 TO MARCH, 1997. CONSEQUENTLY, THE REQUIREMENTS OF ARTICLE 5(2)(1) OF THE DTAA WERE FULFILLED. IN S UCH CIRCUMSTANCES, IT WAS TO BE HELD THAT LTIL, IN FACT, WAS A SERVICE PE OF THE ASSESSEE-COMPANY. AS A RESULT, THE FINDINGS OF THE COMMISSIONER (APPEALS) ON THE AFORESAID ISSUES WERE TO BE SET AS IDE. 58. HOWEVER, THE FACTS IN THE PRESENT CASE ARE DIFF ERENT FOR THE ABOVE CASE. HERE LTHPL ENTERED INTO AN AGREEMENT FOR SUPP LY OF HARDWARE, SOFTWARE AND ALSO INSTALLATION AND THAT COMPANY IS AN INDIAN COMPANY. AFTER ENTERING INTO AN AGREEMENT SUPPLY OF SOFTWARE WAS ASSIGNED TO THE ASSESSEE LUCENT BY WAY OF THE TRIPA RTITE AGREEMENT BETWEEN RELIANCE AND LTHPL AND ASSESSEE LUCENT. EVE NTHOUGH, INSTALLATION WAS ON INDIAN COMPANY THERE IS NO EVID ENCE OF EITHER DEPUTING PERSONNEL OF ASSESSEE LUCENT TO INDIA NOR THERE IS ANY EVIDENCE IN THE RECORD FOR INVOKING SERVICE PE AS I N OTHER CASE. MOREOVER FOR INVOKING AGENCY PE, FACTS DO NOT SUPPO RT AOS CONTENTIONS. THE AGREEMENT ENTERED IS AN INDEPENDEN T AGREEMENT, ENTERED ON PRINCIPLE TO PRINCIPLE BASIS AND NOWHERE THE INDIAN ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 8 COMPANY HAS AUTHORIZED OR HAS UNDERTAKEN ANY RESPON SIBILITY OF THE ASSESSEE LUCENT. ON THE FACTS OF THE CASE WE ARE OF THE OPINION THAT THERE DO NOT EXIST ANY PE, MORE SO OF AGENCY PE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DEPUTED ITS PERSON NEL TO INDIA SO AS TO INVOKE SERVICE PE AS PER INDO-US DTAA. IN VIEW O F THE ABOVE, WE HOLD THAT THERE IS NO PE TO THE ASSESSEE COMPANY IN INDIA AND AS THERE IS NEITHER ANY OFFICE IN INDIA NOR IT HAS ANY BUSINESS CONNECTION IN INDIA NOR CARRIED OUT ANY BUSINESS ACTIVITIES IN INDIA. ASSESSEES COMPANY IS A STANDALONE LEGAL INDEPENDENT ENTITY. T HEREFORE, 109 RELIANCE AND LUCENT GROUP ASSESSEES GROUND NOS. 6 TO 12 ARE UPHELD, AS THERE IS NO PE IN INDIA, SO ATTRIBUTION OF PROFITS DOES NOT ARISE. 59. NON GRANTING OF TDS CREDIT:- AO DID NOT GIVE C REDIT TO THE TDS CLAIMED BY ASSESSEE. AT THE OUTSET IT WAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN 45 SOT 311 LUCENT TECHNOLOGI ES GRL LLC VS. DR. DIRECTOR IT (INTL. TAXATION) CIRCLE-4(1(, MUMBA I WHEREIN IT WAS HELD:- THE ASSESSEE-COMPANY WITH FISCAL DOMICILE IN U.S. A. WAS ENGAGED IN BUSINESS OF SUPPLY OF COPYRIGHTED SOFTWA RE IN CONNECTION WITH TELECOMMUNICATION PROJECT. THE ASSE SSEE RECEIVED CERTAIN AMOUNT FROM R LTD., TOWARDS SUPPLY OF SOF TWARE OUT OF WHICH TAX WAS DEDUCTED AT SOURCE BY R LTD. IT ALS O ISSUED TDS CERTIFICATES TO THE ASSESSEE. ON THE BASIS OF SAID TDS CERTIFICATES THE ASSESSEE CLAIMED, CREDIT FOR TAX DEDUCTED AT SO URCE. IN THE MEANTIME, R LTD. CLAIMED THAT NO TAXES WERE DEDUC TIBLE FROM PAYMENT MADE FOR SUPPLY OF COPYRIGHTED SOFTWARE AND , ACCORDINGLY, APPLICATION TO ASSESSING OFFICER REQUE STING PERMISSION TO MAKE REMITTANCE TO ASSESSEE WITHOUT A NY DEDUCTION OF TAX AT SOURCE BUT SAME WAS REJECTED BY THE ASSES SING OFFICER. SUBSEQUENTLY, R LTD. WAS REFUNDED THE AMOUNT WHIC H IT HAD DEDUCTED AT SOURCE FROM THE PAYMENT MADE TO THE ASS ESSEE. THEREFORE, ASSESSEES CLAIM OF CREDIT FOR TDS WAS D ECLINED BY THE ASSESSING OFFICER ON GROUND THAT R COMPANY HAD BE EN REFUNDED THE AMOUNT OF TDS, HENCE, CERTIFICATE ISSUED BY R LTD. NO LONGER REMAINED VALID. ON APPEAL, THE COMMISSIONER (APPEAL S) UPHELD SAID ORDER. 0N SECOND APPEAL: HELD THE SHORT QUESTION THAT WAS REQUIRED TO BE ANSWERED IN THE INSTANT CASE WAS AS TO WHETHER LAWFUL IMPLICATIONS OF A VALID TAX DEDUCTION CERTIFICATE CAN BE DECLINED ON THE GROUND THAT THE PERSON WHO HAS ISSUED TAX DEDUCTION CERTIFICATES HA S BEEN REFUNDED THE TAXES WHICH HE HAD DEPOSITED WITH THE GOVERNMENT. [PARA 6] THERE WAS NO DISPUTE THAT THE TAXES HAD BEEN DEDUCT ED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195, THE TAX DEDUCTOR HAD FULFILLED HIS OBLIGATIONS UNDER SECTION 200AND THAT TAX ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 9 DEDUCTION CERTIFICATES HAD BEEN ISSUED UNDER SECTIO N 203 - AT LEAST TO THE EXTENT OF TAX DEDUCTIONS. ALL THESE RE QUIREMENTS HAD BEEN DULY COMPLIED WITH, AND, IN ALL FAIRNESS TO TH E ASSESSING OFFICER, THE COMPLIANCE IN RESPECT OF THESE PROVISI ONS HAD NOT EVEN BEEN QUESTIONED. THE ONLY REASON THAT HAD PROMPTED THE ASSESSING OFFICER TO DECLINE THE CREDIT IN RESPECT OF THE TDS CERTIFICATES WAS THAT R LTD. HAD BEEN REFUNDED TA XES WHICH WERE DEDUCTED BY R LTD. AND WHICH WERE DEPOSITED WITH THE GOVERNMENT OF INDIA. [PARA 7] IT WAS ALSO AN UNDISPUTED POSITION THAT SUCH A REFU ND TO TAX DEDUCTOR, AS HAD BEEN GRANTED IN THE INSTANT CASE, WAS NOT PRESCRIBED UNDER THE SCHEME OF THE ACT BUT APPEARED TO BE AN ADMINISTRATIVE EXERCISE. DEPARTMENT COULD NOT POINT OUT ANY PROVISIONS OF LAW UNDER WHICH SUCH A REFUND COULD B E MADE PARTICULARLY AS TDS CERTIFICATES WERE ALREADY ISSUE D BY THE TAX DEDUCTOR, AND NO FAULT WAS FOUND IN THE CERTIFICATE S SO ISSUED. [PARA 8] THE RIGHTS WERE GRANTED TO THE PERSON, FROM WHOSE I NCOME TAXES WERE SO DEDUCTED AND WHO IS ISSUED THE TAX DEDUCTIO N CERTIFICATE IN THE PRESCRIBED MANNER, BY THE STATUTE AND THOSE RIGHTS COULD NOT BE ABRIDGED BY AN ADMINISTRATIVE ACTION ON THE PART OF THE REVENUE AUTHORITIES AND PARTICULARLY WHEN THE PERSO N, WHOSE RIGHTS WERE BEING SOUGHT TO BE ABRIDGED, WAS NOT EV EN A PARTY TO THE ADMINISTRATIVE EXERCISE OR WAS KNOWN OF REFUND BEING GRANTED TO R LTD. REFUND GRANTED TO R LTD. BY REVENUE AUTHORITIES COULD NOT HAVE ADVERSE IMPACT ON THE RIGHTS OF THE ASSESS EE. THAT WAS A MATTER BETWEEN THE TAX AUTHORITIES AND R LTD., ON E WAS SURE THAT THE REVENUE AUTHORITIES, WHILE GRANTING THE REFUND, MUST HAVE SAFEGUARDED THEIR INTERESTS EFFECTIVELY, AND PERHAP S BY NOW R LTD. MIGHT HAVE EVEN RETURNED THE MONIES, BUT ASSES SEE COULD NOT BE EXPECTED TO GET INTO THESE ASPECTS OF THE MATTER . IN THE INSTANT APPEAL, ONE WAS CONFINED TO THE ISSUE THAT THE ASSE SSEE, FROM WHOSE PAYMENTS TAXES HAD BEEN DEDUCTED AT SOURCE AN D WHO WAS ALSO IN RECEIPT OF THE APPROPRIATE CERTIFICATES IN ACCORDANCE WITH THE SCHEME OF THE ACT, MUST GET CREDIT ADMISSI BLE UNDER SECTION 199 AND THAT SUCH A CREDIT WAS NOT DECLINED ON THE BASIS OF AN ACTION WHICH WAS NEITHER CONTEMPLATED BY THE PROVISIONS OF THE ACT, NOR EVEN IN THE CONTROL OF THE ASSESSEE. [ PARA 9] IN VIEW OF THE ABOVE DISCUSSIONS, THE ASSESSING OFF ICER WAS DIRECTED TO GRANT DUE CREDIT TO THE ASSESSEE, ON TH E BASIS OF ORIGINAL TAX DEDUCTION AT SOURCE CERTIFICATES PRODU CED BY THE ASSESSEE, IN ACCORDANCE WITH THE LAW AND AS LONG AS TAXES SO DEDUCTED HAD BEEN PAID OVER TO THE GOVERNMENT AND C ERTIFICATES IN RESPECT OF THE SAME HAD BEEN ISSUED BY THE TAX D EDUCTOR UNINFLUENCED BY ANY REFUNDS SUBSEQUENTLY GRANTED TO THE TAX DEDUCTOR. THE REFUND MADE TO THE TAX DEDUCTOR, EVEN IF WRONGFUL, HAD NO ADVERSE IMPACT ON THE RIGHTS OF THE ASSESSEE . THEREFORE, ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 10 THE ASSESSING OFFICER WAS DIRECTED TO GRANT CREDIT FOR TAX DEDUCTED AT SOURCE, IN ACCORDANCE WITH THE LAW. [PARA 10] RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N, WE DIRECT AO TO GIVE CREDIT TO THE TAX DEDUCTED AT SOURCE. ACCOR DINGLY GROUND NO.13 IS ALLOWED. 60. GROUND NOS. 14, 15 16 PERTAIN TO LEVY OF INTER EST U/S. 234A, 234B AND 234D. IT WAS SUBMITTED THAT THERE WAS TDS ON PAYMENT MADE TO ASSESSEE LUCENT TECHNOLOGIES GRL LLC BY REL IANCE AND THEREFORE, THERE IS NO LIABILITY U/S. 234B. ISSUE I S ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE B OMBAY HIGH COURT IN THE CASE OF DIT (INTL. TAXATION) VS. NGC NETWORK S ASIA LLC (313 ITR 187). IN THAT CASE IT WAS HELD THAT WHEN A DUTY WAS CAST ON THE PAYER TO DEDUCT THE TAX AT SOURCE, ON FAILURE OF THE PAYE R TO DO SO, NO INTEREST COULD BE IMPOSED ON ASSESSEE. HOWEVER, IN THIS CASE TDS WAS ALREADY MADE WHILE PAYING TO THE ASSESSEE LUCENT, E VENTHOUGH ASSESSING OFFICER DENIED CREDIT FOR CERTAIN ADMINIS TRATIVE REASONS. SINCE THE AMOUNT WAS COVERED BY TDS QUESTION OF LEV Y U/S. 234B DOES NOT ARISE. ISSUE OF 234A AND 234D ARE CONSEQUE NTIAL IN NATURE. THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. ACCORD INGLY, GROUND NO.14 AND 16 ARE REJECTED AND GROUND NO.15 IS ALLOW ED. 61. GROUND NO.17 IS WITH RESPECT TO PENALTY. THE AS SESSEE IS CONTESTING THE INITIATION OF PENALTY PROCEEDINGS U/ S. 271(1)(C). THERE IS NO RIGHT OF APPEAL ON INITIATION OF PROCEEDINGS AND SINCE PROCEEDINGS ARE NOT YET FINALIZED, IT IS LITTLE PRE-MATURE TO C ONTEST. THIS GROUND DOES NOT REQUIRE ANY ADJUDICATION. 62. IN THE RESULT, FOUR APPEALS OF LUCENT ARE PARTL Y ALLOWED. 4. SUBSEQUENTLY, IN THESE APPEALS MISCELLANEOUS APPLI CATION WAS FILED BEFORE THE ITAT. THE TRIBUNAL VIDE ORDER DATED 09.1 0.2017 HAS NOTED THAT SIMILAR MISCELLANEOUS APPLICATION FILED BY RELIANCE COMMUNICATION LTD. HAS BEEN ALLOWED BY THE TRIBUNAL VIDE ORDER DATED 1 8.11.2016. THE TRIBUNAL HAS STATED THAT IT WAS BROUGHT TO THE NOTI CE OF THE BENCH THAT THE ASSESSEE WAS ALSO PARTY IN THE ORDER PASSED BY THE TRIBUNAL DATED 06.09.2013 ALONG WITH M/S. RELIANCE COMMUNICATION L TD. ACCORDINGLY THE TRIBUNAL HAD RECALLED THE ORDER. SUBSEQUENTLY A COR RIGENDUM WAS PASSED AND IN THE CORRIGENDUM DATED 07.02.2018 THE TRIBUNA L HAD DIRECTED AS UNDER: - 3. ONLY REQUEST WAS TO CONSIDER GROUND NO. 2 WHERE AS DUE TO TYPOGRAPHICAL ERROR, THE ENTIRE ORDER HAS BEEN RECA LLED. NOW PARA 12 MAY READ AS UNDER: - ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 11 12. IN VIEW OF THE ABOVE DISCUSSION, WE RECALL THE GROUND NO. 2 PASSED BY THE TRIBUNAL AND REGISTRY IS DIRECTED TO FIX THE APPEALS FOR HEARING AFRESH BY REGULAR BENCH. 5. PURSUANT TO THE ABOVE RECALL WE HAVE HEARD GROUND NO. 2 RAISED IN THIS APPEALS. GROUND NO. 2 READS AS UNDER: - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DISPUTE RESOLUTION PANEL (HEREIN AFTER REFERRED TO AS 'THE DRP') HAVE ERRED IN HOLDING THA T THE AMOUNTS RECEIVED BY THE APPELLANT FROM SUPPLY OF SOFTWARE T O RELIANCE COMMUNICATIONS LIMITED (PREVIOUSLY KNOWN AS RELIANC E INFOCOMM LIMITED) (HEREINAFTER REFERRED TO AS 'RELI ANCE') ARE 'ROYALTY' IN NATURE UNDER THE PROVISIONS OF THE ACT AND UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT BETWEEN INDIA AND USA (HEREINAFTER REFERRED TO AS 'DTAA') A ND THUS LIABLE TO TAX IN INDIA. 6. WE FIND THAT IN THE CASE OR RELIANCE COMMUNICATIONS LTD., FROM WHOM PAYMENT HAS BEEN RECEIVED BY THE ASSESSEE COMP ANY, ITAT HAS PASSED AN ORDER WHEREIN IT HAS BEEN HELD THAT THE I MPUGNED PAYMENT WOULD NOT QUALIFY AS ROYALTY. IN THE SAID ORDER DAT ED 02.02.2018 IN THE CASE OF DDIT VS. RELIANCE COMMUNICATIONS LTD. IN IT A NO. 837 & OTHERS THE TRIBUNAL HAD ADJUDICATED THE ISSUE AS UNDER: - 7. AFTER CONSIDERING THE VARIOUS CLAUSES OF THE AB OVE MENTIONED AGREEMENTS, WE ARE OF THE OPINION THAT BELOW MENTIO NED FACTORS CAN BE VERY HELPFUL TO SOLVE THE KNOTTY PROBLEM OF TAXA TION OF ROYALTY PAYMENTS TO THE NON-RESIDENTS. IN SUCH MATTERS, WHA T HAS TO BE SEEN IS THAT AS TO WHETHER: I) THE SOFTWARE WAS SOLD IN THE SAME MANNER AS WIRE LESS NETWORK EQUIPMENT, II) THE SOFTWARE WAS AN INTEGRAL PART OF THE WIRELE SS-EQUIPMENT, WHICH FACILITATED RUNNING OF THE SAID EQUIPMENT, III) THE SUBJECT SOFTWARE HAD NO INDEPENDENT VALUE OF ITS OWN, IV) COPYRIGHTS IN THE SOFTWARE WERE TRANSFERRED TO THE CUSTOMERS, V) ACCESS TO THE 'SOURCE CODES' IN THE SOFTWARE WAS GRANTED TO THE ASSESSEE, VI) THE PAYMENT FOR SOFTWARE WAS NOT RELATED TO THE PRODUCTIVITY, USE OR NUMBER OF SUBSCRIBERS, VII) THE CUSTOMERS DID NOT HAVE THE RIGHT TO COMMER CIALLY EXPLOIT THE SOFTWARE, ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 12 VIII) THE SOFTWARE SUPPLY WAS IN THE NATURE OF TRA NSFER OF COPYRIGHTED ARTICLE AND NOT TRANSFER OF 'A COPYRIGH TED RIGHT. IF REPLIES TO QUESTIONS NO. IV) AND V) ARE NEGATIVE AND REPLIES TO REMAINING QUESTIONS ARE IN POSITIVE, THEN IT CAN BE SAFELY HELD THAT THE PAYMENTS MADE BY AN ASSESSEES CANNOT BE TREATED ROY ALTY. WE CAN SUMMARISE THE ABOVE DISCUSSION BY HOLDING THAT THE TERMS AND CONDITIONS OF THE AGREEMENTS WILL DECIDE AS TO WHET HER THE PAYMENTS MADE BY THE ASSESSEES TO THE SUPPLIERS OF SOFTWARE FOR THE WIRELESS NETWORK CAN BE CONSIDERED ROYALTY. IN OTHER WORDS, RIGHTS OF THE OWNER OF THE IPR.S ON ONE HAND AND THE RIGHTS AND D UTIES OF PURCHASERS/USERS ON THE OTHER HAND ARE THE DECISIVE FACTORS. IF THE OWNER RETAINS ABSOLUTE RIGHTS OF THE IPR.S WITH ITS ELF THEN THE PAYMENTS MADE BY THE USER WILL NOT BE ROYALTY. BUT, IF THE OWNER TRANSFERS THE RIGHTS OF THE PROPERTY AGAINST PERIOD ICAL OR ONETIME PAYMENT TO THE USER IT WILL BE A CASE OF PAYMENT OF ROYALTY. THUS, IT IS THE DEGREE OF TRANSFER OF THE RIGHTS OF IPR.S THAT IS VERY CRUCIAL. 7.1. WE DO NOT HAVE EVEN SLIGHTEST DOUBT IN OUR MIN D THAT THE ANSWERS TO QUESTIONS NUMBER FOUR AND FIVE, AT PARAG RAPH 7,ARE PLAIN AND SIMPLE NO, IF THE AGREEMENTS ENTERED IN TO BY T HE ASSESSEE WITH THE NON-RESIDENT SUPPLIERS OF SOFTWARES ARE ANALYSE D. SIMILARLY, REMAINING QUESTION WILL HAVE POSITIVE ANSWERS. IN T HE EARLIER PARAGRAPHS, WE HAVE SUMMARISED THE MAIN CHARACTERIS TICS OF THE AGREEMENTS. ALL THE AGREEMENTS STIPULATE THAT THE A SSESSEE WOULD BE USING THE SOFTWARE FOR OPERATION OF ITS WIRELESS N ETWORK ONLY. THUS, IT IS CLEAR THAT IT WAS PREVENTED FROM UTILISING THE S OFTWARE FOR COMMERCIAL USES. HAD THE ULTIMATE AUTHORITY BEEN WI TH THE ASSESSEE, IT COULD HAVE USED THE SOFTWARE IN THE MANNER IT WA NTED. IT COULD MAKE COPIES OF SOFTWARE OR THE DOCUMENTATION OR PAR TS THEREOF FOR ARCHIVAL PURPOSES ONLY. RESTRICTION ON COPYING THE SOFTWARE CLEARLY ESTABLISHES THAT THE SUPPLIERS OF THE SOFTWARES WER E THE SOLE AND EXCLUSIVE OWNER OF THE RIGHTS, TITLE AND PROPERTY I N SOFTWARE AND THE SOURCE CODES. SOFTWARE AGREEMENTS FORBID THE ASSESS EE FROM TRANSFERRING, ASSIGNING, SUB-LICENSING, USING BY OU TSOURCING, DECOMPILING, REVERSE-ENGINEERING, DISASSEMBLING/DEC ODING THE SOFTWARE. NONE OF THE AGREEMENT TALKS OF TRANSFERRI NG OF COPYRIGHT TO THE ASSESSEE BY THE SUPPLIERS - RATHER IT IS CLEARL Y MENTIONED IN THE AGREEMENTS THAT COPYRIGHT WOULD REMAIN WITH THEM. A GREEMENTS PROVIDE RETURNING OF THE COPIES OF THE SOFTWARE TO THE VENDORS UPON TERMINATION OR CANCELLATION OF THE AGREEMENTS. SO, WE HOLD THAT THE CONSIDERATION PAID BY THE ASSESSEE TO THE SUPPLIERS FOR ACQUIRING COPY OF SOFTWARE WAS NOT FOR THE USE OF COPYRIGHT OR TR ANSFER OF RIGHT TO USE OF COPYRIGHT THE PAYMENT WAS MADE FOR THE COPYRIG HTED ARTICLE AND THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE VENDO RS OF SOFTWARE CANNOT BE TAXED AS ROYALTY. 8. WHILE DECIDING THE APPEALS, FILED BY THE 19 RECI PIENTS, WHO ARE NOT PART OF THE PRESENT APPEALS, THE TRIBUNAL OR THE HO NBLE HIGH COURTS HAVE HELD THAT SUMS-RECEIVED BY THEM FROM THE ASSES SEES FOR SUPPLY OF SOFTWARE FOR WIRELESS- NETWORK-WERE NOT TAXABLE IN THEIR HANDS AND ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 13 THAT THE PAYMENTS COULD NOT BE TERMED AS ROYALTY. T HOSE SUPPLIERS ARE NORTEL NETWORKS INDIA INTERNATIONAL INC. USA, TEAM TELECOM INTERNATIONAL LTD., ISRAEL, MOTOROLA INC USA, ALCAT EL USA INTERNATIONAL MARKETING INC USA, ZTE CORPORATION CHINA AND ERICSS ON AB SWEDEN. ALL THE ABOVE MENTIONED VENDORS HAD RECEIVED PAYMEN T FOR SUPPLY OF SOFTWARES. ONLY ON THIS COUNT, WE COULD HAVE DISMIS SED THE APPEALS FILED BY THE AO.S IN RESPECT OF THOSE ASSESSEES. BU T, WE ARE NOT ADJUDICATING THE ISSUE BEFORE US, ONLY ON THAT BASI S. WE HAVE CONSIDERED THE INDIVIDUAL AGREEMENTS OF THE FOLLOWI NG SUPPLIERS: E-SERV GLOBAL LIMITED., ECI TELECOM-NGTS LTD., SEPT IER COMMUNICATION LTD., VERINT SYSTEMS LTD.(I),3 COM AS IA PACIFIC RIM PTE.LTD., ACTIX PTE. LTD., AGILENT TECHNOLOGIES SIN GAPORE (SALES) PTE. LTD., INFOVISTA (ASIA PACIFIC) PTE. LTD. SINGAPORE, AGILENT TECHNOLOGIES SINGAPORE (SALES) PTE. LTD., NORTEL NETWORK SINGAPO RE PTE. LTD., SUN MICROSYSTEM PTE. LTD., ENVILOGG AB, TECHTRONIX INC. , TEKELEC INC., ULTICOM INC. AND VENTURI WIRELESS INC. USA. FROM THE PERUSAL OF THE AGREEMENTS ONE THING IS CLE AR THAT THERE WAS NO TRANSFER OF COPYRIGHT OF THE SOFTWARE IN ANY MAN NER. AS MENTIONED EARLIER, A COPYRIGHT IS DIFFERENT FROM THE WORK IN RESPECT OF WHICH COPYRIGHT SUBSISTS. THE ASSESSEE HAD ONLY GOT A COP Y OF SOFTWARE WITHOUT ANY PART OF THE COPYRIGHT OF THE SOFTWARE. ALL THE ARGUMENTS ADVANCED BY THE DR ABOUT ICA, INCLUDING THE SECTION 30, IN OUR OPINION ARE OF NO HELP. AT THE COST OF REPLETION, W E ARE HOLDING THAT IN THE CASES UNDER CONSIDERATION PAYMENTS MADE BY THE ASSESSEE WAS FOR COPYRIGHTED ARTICLES. SO, WE ARE OF THE OPINION THAT PAYMENTS MADE BY IT TO VARIOUS SUPPLIERS OF SIX COUNTRIES DID NOT AMOUNT TO ROYALTY WITHIN THE DEFINITION OF ARTICLE 12/13(3) OF THE DT AA.S AND IT WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE. 8.1. SUBMISSIONS OF THE DR IN RESPECT OF SOFTWARE B EING PROCESS INVENTION/ EQUIPMENT WERE CONSIDERED IN THE MATTER OF ZTE CORPORATION(SUPRA).THE TRIBUNAL, IN THE CASE OF BAA N GLOBAL BY(71 TAXMANN.COM 213), HELD THAT RECEIPTS FROM SALE OF S HRINK-WRAPPED SOFTWARE CANNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF DTAA AS THE SAME IS CONSIDERATION FOR THE COPYRIGHTED PR ODUCT AND NOT FOR THE USE OF COPYRIGHT. IN THE SAID CASE, THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND SALE OF SOFTWARE AN D OTHER SERVICES RELATED TO SOFTWARE PRODUCTS. WHILE DECIDING THE IS SUE, THE TRIBUNAL OBSERVED THAT THE SALE OF SOFTWARE CANNOT BE HELD T O BE COVERED WITHIN THE EXPRESSION 'USE OR PROCESS. FURTHER, IN THE CA SES OF SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV (80 TAXMANN .COM 64), NATIONAL STOCK EXCHANGE OF INDIA LTD (SUPRA), FIRST ADVANTAGE (P.) LTD. (163 ITD 165) DATAMINE INTERNATIONAL LTD. (68 TAXMA NN.COM97); BLACK DUCK SOFTWARE INC. (86 TAXMANN.COM 62); I.T.C. LTD. (79 TAXMANN. COM 206), THE TRIBUNAL HAS CONSIDERED THE TERM PROCESS WHILE DECIDING THE ISSUE OF SOFTWARE IS NOT ROYALTY. WE ALSO FIND THAT IN THE CASE OF AVEVA INFORMATION TECHNOLOGY INDIA (P.) LTD. (85TAX MANN.COM 14), THE TRIBUNAL HAD CONSIDERED THE ARGUMENT THAT SOFTW ARE WAS INVENTION/PATENT, ETC. AND HAD HELD THAT PAYMENT MA DE FOR PROCURING ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 14 AND DISTRIBUTING COPY - RIGHTED SOFTWARE WAS NOT RO YALTY. JUDGMENT OF SAMSUNG WAS CONSIDERED IN THE CASES OF SOLID WORKS CORPN. (SUPRA); SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV (80TA XMANN.COM 64); SHINHAN BANK (76 TAXMANN.COM 42); BAAN GLOBAL BV (7 1 TAXMANN. COM 213); ALCATEL LUCENT USA INC. (ITA.S/1131,7299 & 7300/MUM/ 2010), NATIONAL STOCK EXCHANGE OF INDIA LTD. (SUPRA ), LUCENT TECHNOLOGIES HINDUSTAN LTD.(348 ITR 196), HALLIBURT ON EXPORT INC (152 ITD 803), HALLIBURTON EXPORT INC.(ITA 477 OF 2 014 OF THE HONBLE DELHI HIGH COURT). 9. WE ARE AWARE THAT THE HONBLE KARNATAKA HIGH COU RT HAS HELD THAT THE PAYMENT FOR SUPPLY OF SOFTWARE IS ROYALTY. THUS, WE HAVE TWO DIAGONALLY OPPOSITE VIEWS ON THE SAME ISSUE. IN SUC H A SITUATION THE HON'BLE SUPREME COURT HAS, IN THE MATTER OF PRADIP J. MEHTA (300 ITR 231), HELD THAT WHEN TWO VIEWS WERE POSSIBLE, THEN INVARIABLY, THE COURT WOULD ADOPT THE INTERPRETATION WHICH IS FAVOU R OF THE TAXPAYER. THE HONBLE COURT HELD AS UNDER: 29. IT IS WELL-SETTLED THAT WHEN TWO INTERPRETATIO NS ARE POSSIBLE, THEN INVARIABLY, THE COURT WOULD ADOPT THE INTERPRE TATION WHICH IS IN FAVOUR OF THE TAXPAYER AND AGAINST THE REVENUE. REFERENCE MAY BE MADE TO THE DECISION IN SNEH ENTERPRISES V. COMM ISSIONER OF CUSTOMS [2006] 7 SCC 714, OF THIS COURT WHEREIN, IN TER ALIA, IT WAS OBSERVED AS UNDER : 'WHILE DEALING WITH A TAXING PROVISION, THE PRINCIP LE OF ' STRICT INTERPRETATION' SHOULD BE APPLIED. THE COURT SHALL NOT INTERPRET THE STATUTORY PROVISION IN SUCH A MANNER WHICH WOULD CR EATE AN ADDITIONAL FISCAL BURDEN ON A PERSON. IT WOULD NEVE R BE DONE BY INVOKING THE PROVISIONS OF ANOTHER ACT, WHICH ARE N OT ATTRACTED. IT IS ALSO TRITE THAT WHILE TWO INTERPRETATIONS ARE PO SSIBLE, THE COURT ORDINARILY WOULD INTERPRET THE PROVISIONS IN FAVOUR OF A TAXPAYER AND AGAINST THE REVENUE.' CONSIDERING THE ABOVE, WE WOULD LIKE TO FOLLOW THE JUDGMENTS OF HONBLE MADRAS AND DELHI HIGH COURTS RATHER THAN JU DGMENT OF HONBLE KARNATAKA HIGH COURT. 10. WE WOULD ALSO LIKE TO DEAL WITH OTHER ARGUMENTS ADVANCED BY THE DR AND THE CASES RELIED UPON BY HIM. IN THE CAS E OF M/S. PSI DATA SYSTEM LTD., WE FIND THAT THE HONBLE SUPREME HIGH COURT HAS HELD AS UNDER: 'WE MAKE IT CLEAR AT THE OUTSET THAT WHEN WE SHALL SPEAK OF SOFTWARE, WE SHALL BE REFERRING TO THE TANGIBLE SOF TWARE OF THE NATURE OF DISCS, FLOPPIES AND CD ROM AND NOT TO THE INTELLECTUAL PROPERTY, ALSO CALLED SOFTWARE, THAT IS RECORDED OR STORED THEREON.' THEREFORE, WE HOLD THAT THE AFORESAID CASE IS NOT A PPLICABLE TO THE FACTS OF THE PRESENT CASE. IN ELKEM TECHNOLOGY (SUP RA), THE QUESTION RAISED BEFORE THE HONBLE ANDHRA PRADESH HIGH COURT WAS DEALING WITH COMPOSITE CONTRACT INVOLVING SUPPLY OF EQUIPME NT AND PROVIDING OF ENGINEERING SERVICE. THE HIGH COURT HELD THAT TH E CONSIDERATION FOR ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 15 ENGINEERING SERVICE WOULD BE INDEPENDENT OF CONSIDE RATION FOR THE SUPPLY OF EQUIPMENTS. WE ARE OF THE OPINION, THAT T HE JUDGMENT IS OF NO HELP TO DECIDE THE ISSUE BEFORE US. CONSIDERING THE ABOVE AND CONFIRMING THE ORDERS OF THE FAA, WE DECIDE THE EFFECTIVE GROUNDS OF APPEALS AGAINST THE AO.S, AS, IN OUR OPINION, SAME DOES NOT SUFFER FROM ANY FACTUAL OR L EGAL INFIRMITIES. 7. REFERRING TO THE ABOVE ORDER OF THE ITAT THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ITAT HAS CONSIDER ED IN DETAIL AND HELD THAT THE PAYMENT DID NOT AMOUNT TO ROYALTY AND THE PAYER, M/S. RELIANCE COMMUNICATIONS, HAS BEEN ABSOLVED FROM THE LIABILIT Y OF DEDUCTING TAX THERE FROM, THIS INCOME CANNOT BE TAXED IN THE HAND S OF THE ASSESSEE AS ROYALTY AND HENCE NO TAX IS EXIGIBLE. 8. PER CONTRA THE LEARNED D.R. DID NOT DISPUTE THE POS ITION THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THIS TRIBUNAL IN THE CASE RELIANCE COMMUNICATIONS (SUPRA). HOWEVE R, THE LEARNED D.R. SUBMITTED THAT THE ASSESSMENT IN THIS CASE HAVE BEE N FRAMED AFTER REOPENING UNDER SECTION 127 OF THE ACT. HE PLEADED THAT IN THE REOPENING ASSESSEE CANNOT MAKE OUT A NEW CASE IN ITS FAVOUR. HE REFERRED TO THE SUBMISSIONS OF THE DEPARTMENT BEFORE THE TRIBUNAL W HEN THE MATTER WAS FIRST HEARD IN THE ORDER DATED 06.09.2013 WHEREIN T HE DEPARTMENTAL SUBMISSION WAS NOTED AS UNDER:- 56. THE LD. COUNSEL HOWEVER RELIED ON THE ORDERS TH AT THE AO AS SUPPORTED BY DRP. IT WAS FURTHER SUBMITTED THAT ASS ESSEE CHOSE NOT TO FILE RETURN AFTER TDS WAS MADE AND THEREFORE, SI NCE PROCEEDINGS ARE INITIATED UNDER SECTION 148 ASSESSEE CANNOT SEE K ANY BENEFIT IN THE PROCEEDINGS INITIATED FOR THE BENEFIT OF THE RE VENUE . HE RELIED ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF K. SUDHAKAR S. SHANBHAG VS ITO (241 ITR 865) FOR THE P ROPOSITION OF DOCTRINE OF ELECTION. HENCE THE LEARNED D.R. PLEADED THAT NO BENEFIT CAN BE GRANTED TO THE ASSESSEE IN THE REOPENED ASSESSMENT. 9. ON THE OTHER HAND LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO SUCH GROUND BEFORE US FOR ADJUDICATION . HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT AT ALL MADE OUT A NEW CASE OR SOUGHT ANY NEW BENEFIT. HE SUBMITTED THAT IT HAS ALL ALONG BEEN AS SESSEE'S CLAIM THAT THE ITA NOS. 7001 TO 7004/MUM/2010 M/S. LUCENT TECHNOLOGIES GRL LLC 16 SAID PAYMENT RECEIVED DOESN'T AMOUNT TO ROYALTY AND HENCE NOT TAXABLE IN THE HANDS OF THE ASSESSEE. HENCE THE ASSESSEE WAS N OT FILING ANY RETURN OF INCOME. IT IS ONLY WHEN THE ASSESSEE WAS VISITED WI TH THE ASSESSMENT NOTICE THAT THE ASSESSEE FILED ITS RETURN OF INCOME AND MADE THE CLAIM OF THE INCOME NOT BEING IN THE NATURE OF ROYALTY AND H ENCE NOT TAXABLE 10. HAVING HEARD BOTH THE COUNSEL AND PERUSED THE MATER IAL ON RECORD WE NOTE THAT AFTER NOTING THE SUBMISSION OF THE ASSESS EE THE TRIBUNAL IN ITS ORDER HAD NOT ADJUDICATED THIS LIMB OF DEPARTMENTS ARGUMENT. THE DEPARTMENT HAD NOT FILED ANY MISCELLANEOUS APPLICAT ION BEFORE THE TRIBUNAL OR APPEALED BEFORE THE HON'BLE HIGH COURT AGAINST N ON ADJUDICATION OF THIS ASPECT/ISSUE. WE ARE SEIZED WITH GROUND NO.2 ONLY R ECALLED BY ITAT. HENCE WE DO NOT HAVE THE JURISDICTION TO GO INTO THIS ASP ECT NOR IT IS EMANATING FROM THE IMPUGNED ORDER IN APPEAL BEFORE US. ACCORD INGLY AS DISCUSSED ABOVE, SINCE IT HAS ALREADY BEEN HELD IN THE HANDS OF RELIANCE COMMUNICATIONS SUPRA BY THE ELABORATE ORDER REFERRE D ABOVE THAT THE PAYMENT MADE BY IT WAS NOT ROYALTY IN THE HANDS OF THE ASSESSEE, THESE AMOUNTS ARE NOT TAXABLE AS INCOME IN THE HANDS OF T HE ASSESSEE. ACCORDINGLY THIS GROUND NO. 2 RAISED BY THE ASSESSE E STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MAY, 2018. SD/ - SD/ - (RAVISH SOOD) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 2 ND MAY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT CONCERNED 5. THE DR, L BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.