Cummins Inc, Pune V. Dy. Director of IT ( International Taxation)-1, Pune

ITA 73/PUN/2011

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9026 (ITAT-PUNE)
• Duration Of Justice: 8 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-04-2019
• Assessment Year: 2004-2005
• Appeal Filed On: 14-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: R R VORA
• Keywords: Reopening of assessment; Transfer pricing; Double taxation relief; International transaction; Difference of opinion; Change of opinion
• Section: 143(3); 201(1); 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO S.73 & 74 /PUN/201 1 / ASSESSMENT YEAR S : 20 04 - 05 & 2006 - 07 CUMMINS INC C/O CUMMINS INDIA LIMITED, KOTHRUD, PUNE 38 PAN : AABCC6225D ....... / APPELLANT / V/S. DY. DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION 1, PUNE / RESPONDENT ASSESSEE BY : SHRI R.R. VORA REVENUE BY : SHRI S.B. PRASAD / DATE OF HEARING : 09 - 04 - 2019 / DATE OF PRONOUNCEMENT : 05 - 0 7 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH ESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ASSESSMENT ORDER DATED 15 - 11 - 2010 FOR ASSESSMENT YEAR 2004 - 05 PASSED U/S. 143(3) R.W.S. 147 R.W.S. 144C(13) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND ASSESSMENT ORDER DATED 2 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 16 - 11 - 2010 FOR THE ASSESSMENT YEAR 2006 - 07 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE ACT, RESPECTIVELY. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE DISPOSED OF VIDE THIS COMMON ORDER. BRIEF FACT S : 2. THE FACTS COMMON TO BOTH THE IMPUGNED ASSESSMENT YEARS ARE : THE ASSESSEE /APPELLANT IS A NON - RESIDENT COMPANY INCORPORATED IN THE UNITED STATES OF AMERICA (USA). IT IS A TAX RESIDENT OF THE USA. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF HEAVY DU TY AND MID - RANGE ENGINES FOR TRUCKS AND BUSES AND MARINE LODGING, AGRICULTURE AND RAIL APPLICATIONS. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEARS UNDER APPEAL THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS INDIAN ASSOCIATES (JOINT VEN TURE) I.E. CUMMINS INDIA LIMITED (CIL) AND CUMMINS SALES AND SERVICES INDIA LIMITED (CSSIL). THE ASSESSEE HAD PROVIDED OFF - THE - SHELF SOFTWARE AND RELATED SUPPORT SERVICES TO ITS ASSOCIATES IN INDIA TO THE TUNE OF RS.7,75,38,913/ - IN ASSESSMENT YEAR 2004 - 0 5 AND RS.6,27,69,649/ - IN ASSESSMENT YEAR 2006 - 07. THE ASSESSEE CLAIMED THE RECEIPTS IN LIEU OF SERVICES PROVIDED AS REIMBURSEMENT OF EXPENDITURE. THE ASSESSING OFFICER AS WELL AS DRP HELD THAT THE PAYMENTS RECEIVED BY APPELLANT ARE IN THE NATURE OF ROY ALTY U/S. 9(1)(VI) OF THE ACT AND HENCE, TAXABLE IN INDIA . 3 . THIS IS SECOND ROUND OF LITIGATION BEFORE THE TRIBUNAL. THE CO - ORDINATE BENCH OF TRIBUNAL IN THE FIRST ROUND VIDE ORDER DATED 08 - 08 - 2013 HAD DECIDED THIS ISSUE AGAINST THE ASSESSEE BY FOLLO WING THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX & ORS. VS. SAMSUNG ELECTRONICS CO. LTD. & ANR. REPORTED AS 345 ITR 494. THEREAFTER, THE ASSESSEE FILED MISCELLANEOUS APPLICATION S NO. 28 & 3 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 29/PUN/2017 FOR RECALLIN G THE AFORESAID ORDER OF TRIBUNAL BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF RELIANCE COMMUNICATION LTD. DECIDED ON 08 - 08 - 2017. THE TRIBUNAL VIDE ORDER DATED 06 - 12 - 2017 IN THE AFORESAID MISCELLANEOUS APPLICATI ONS RECALLED ITS EARLIER ORDER DATED 08 - 08 - 2013 , AS THE REASONS FOR RECALLING THE ORDER IN RELIANCE COMMUNICATION LTD. (SUPRA) BEFORE THE MUMBAI BENCH OF TRIBUNAL WERE SIMILAR. ITA NO. 73/PUN/2011, (A.Y. 2004 - 05) 4 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL IN THE ASSESSMENT YEAR 2004 - 05 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND CONSEQUENTLY THE LEARNED AO HAVE : 1. GROUND CHALLENGING THE INITIATION OF RE - ASSESSMENT PROCEEDINGS UNDER SECTION 147 ERRED IN INVALIDLY INITIATING RE - ASSESSMENT PROCEEDINGS AS THE REASON PROVIDED BY THE LEARNED AO IS A MERE CHANGE OF OPINION IN RESPECT OF ALREADY ASSESSED TRANSACTION AND SUCH CHANGE IN OPINION CANNOT FORM THE BASIS OF INITIATING RE - ASSESSMENT PROCEEDIN GS. 2. GROUND CHALLENGING THE TAXABILITY OF CONSIDERATION FOR FACILITATING GRANT OF USER RIGHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES OF RS.77,538,913 ERRED IN TREATING THE CONSIDERATION FOR FACILITATING GRANT OF USER RI GHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES RECEIVED BY THE APPELLANT FROM CUMMINS INDIA LIMITED (CIL) AND CUMMINS SALES AND SERVICES (INDIA) LIMITED (CSSIL) TOTALING TO RS.77,538,913 TAXABLE AS ROYALTY IS DEFINED IN EXPL ANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (DTAA) AND LEVYING TAX @ 15% ON THE SAME. ERRED IN FACTS AND LAW IN NOT APPRECIATING THAT THE APPELLANT HAD PROVIDED TO CIL AND CSSIL, THE USER RIGHTS IN THE COPYRIGHTED ARTICLE AND NOT RIGHT TO USE THE COPYRIGHT AND THUS CANNOT BE REGARDED AS ROYALTY UNDER THE PROVISIONS OF THE ACT AND THE DTAA. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AME ND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONOURABLE INCOME - TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 4 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 5. SHRI R.R. VORA APPEARING ON BEHALF OF THE ASSESSEE SUB MITTED THAT THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT CONSIDERATION RECEIVED BY THE ASSESSEE FOR GRANT OF USER RIGHTS IN SOFTWARE AND RELATED SUPPORT SERVICES ARE CHARGEABLE TO TAX IN INDIA AS ROYALTY. 5.1 AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP REJECTED THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE FINDINGS OF ASSESSING OFFICER IN DETERMINING THE NATURE OF PAYMENTS FOR SERVICES PROVIDE D BY THE ASSESSEE AS ROYALTY W ITHIN THE MEANING OF SECTION 9(1) (VI) OF THE ACT. 5.2 THE LD. AR SUBMITTED THAT THE ASSESSEE/APPELLANT BEING A PRINCIPAL COMPANY OF GROUP , PROCURED VARIOUS SOFTWARES WITH THE OBJECT OF STANDARDIZATION , EFFICIEN C Y, CONSISTENCY AND COST EFFECTIVE NESS . T HEREAFTER , THE APPELLANT GRANTED USER RIGHTS IN THE SOFTWARES TO ITS AFFILIATE COMPANY WORLDWIDE FOR THEIR INTERNAL USE INCLUDING ITS AFFILIATES IN INDIA I.E. CIL AND CSSIL. THE ASSESSEE/APPELLANT ENTERED INTO SEPARATE AGREEMENTS DATED 07 - 0 6 - 20 0 4 WITH CIL AND CSSIL FOR GRANT OF USER RIGHTS IN THE SOFTWARE AND PROVISION OF RELATED BASIC SOFTWARE SUPPORT SERVICES. THE APPELLANT OBTAINED LICENSES IN RESPECT OF CERTAIN SOFTWARE VIZ. ORACLE, LOTUS NOTES FROM IBM. WINDOWS FROM MICROSOFT, ETC. AND ALSO INCLUDED CERTAIN ADDITIONAL MODULES OFFERED BY THE SOFTWARE VENDORS. THE SOFTWARE PROGRAMS WERE PROCURED DIRECTLY BY THE APPELLANT AS A PART OF ITS AGREEMENTS WITH THE THIRD PARTY VENDORS, I.E. THE OWNERS OF SUCH SOFTWARE PROGRAMS. THERE WAS NO CHANGE MADE BY TH E APPELLANT TO SUCH SOFTWARE PROGRAMS AND THE CORRESPONDING MODULES WHEN IT WAS SHARED WITH ITS GLOBAL AFFILIATES. THIS IS BECAUSE A COPYRIGHT IN THESE SOFTWARE PROGRAMS I.E. SOURCE CODE OR OBJECT CODE HAS NOT BEEN GRANTED TO THE APPELLANT BY THE 5 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 SOFTWARE VENDORS. T HE APPELLANT HAS OBTAINED NON - EXCLUSIVE USER RIGHT AND DOES NOT HAVE ANY RIGHTS TO SUB - LICENSE/REVERSE ENGINEER THE SOFTWARE. 5.3 THE LD. AR CONTENDED THAT THE ISSUE ; W HETHER THE GRANT OF USER RIGHTS IN THE SOFTWARE AND THE PAYMENTS MADE IN LIEU THEREOF PARTAKE THE CHARACTER OF ROYALTY OR NOT , HAS BEEN CONSIDERED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. VS. DDIT IN ITA NOS. 905 & 906/PUN/2015 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 DECIDED ON 23 - 01 - 2 019. THE LD. AR POINTED THAT THE AFORESAID CASE WAS THE CASE OF PAYMENTS MADE TO THE SUPPLIERS , WHEREAS IN THE PRESENT CASE THE ASSESSEE IS RECIPIENT OF SUCH PAYMENTS. THE LD. AR FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF SYMANTEC CORPORATION VS. DCIT IN ITA NO. 387/PUN/2017 FOR THE ASSESSMENT YEAR 2013 - 14 DECIDED ON 05 - 04 - 2019 HAS CONSIDERED THE IDENTICAL ISSUE. THE FACTS IN THE AFORESAID CASE WERE IDENTICAL TO THE FACTS OF THE CASE OF PRESENT ASSESSEE, AS THE APPELLANT THEREIN WAS ALSO RECIPIEN T OF THE PAYMENTS FOR PROVIDING SOFTWARE TO ITS INDIAN AFFILIATES. THE TRIBUNAL AFTER PLACING RELIANCE ON THE DECISION OF JOHN DEERE INDIA PVT. LTD. (SUPRA) HELD THAT THE PAYMENTS RECEIVED FOR PROVIDING SOFTWARE DO NOT FALL WITHIN THE PURVIEW OF ROYALTY U /S. 9(1)(VI) OF THE ACT. THE LD. AR TO FURTHER BUTTRESS HIS CONTENTIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . INTEC BILLING IRELANT VS. ADIT IN ITA NO. 1535/MUM/2014 DECIDED ON 08 - 01 - 2018; II . DDIT VS. GUJARAT PIPAVAV PROT LTD. IN ITA NO. 7823/MUM/2010 DECIDED ON 10 - 02 - 2017; III . TATA TE CHNOLOGIES LTD. VS. DDIT IN ITA NO. 1433/PUN/2014 DECIDED ON 05 - 04 - 2018; IV . DIT VS. INFRASOFT LTD. REPORTED AS 264 CTR 329 (DELHI) ; 6 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 V . ALLIANZ SE VS. DDIT IN ITA NOS. 157 & 158/PUN/2011 FOR ASSESSMENT YEARS 2004 - 05 AND 2007 - 08 DECIDED ON 25 - 06 - 2012 . 5.4 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE/APPELLANT IS A RESIDENT OF USA AND IS ELIGIBLE TO CLAIM BENEFICIAL PROVISIONS UNDER INDIA - US DOUBLE TAX AVOIDANCE AGREEMENT (TREATY) ( DTAA ) . THE DEFINITION OF ROYALTY AS GIVEN IN ARTICLE 12 OF THE DTAA IS VERY RESTRICTIVE AS COMPARED TO ROYALTY DEFINED UNDER THE ACT. THE CONSIDERATION RECEIVED FOR GRANT OF USER RIGHTS IN SOFTWARE LICENSES WOULD NOT AMOUNT TO ROYALTY INCOME WITHIN THE PURVIEW OF DTAA. IT IS A WELL SETTLED LEGAL P OSITION THAT WHERE DTAA IS MORE BENEFICIAL TO THE APPELLANT , THE SAME WOULD PREVAIL OVER THE PROVISIONS OF THE ACT. 6. ON THE OTHER HAND SHRI S.B. PRASAD REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ASSESSMENT ORDER AND PRAYED FOR DISMISSING THE APPEALS OF ASSESSEE. THE LD. DR SUBMITTED THAT THE ISSUE IN THE PRESENT APPEAL I.E. WHETHER THE PAYMENTS RECEIVED FOR SUPPLY OF SOFTWARE FALLS WITHIN THE DEFINITION OF ROYALTY HAS BEEN CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSI ONER OF INCOME TAX & ORS. VS. SAMSUNG ELECTRONICS CO. LTD. & ANR. (SUPRA). THE HONBLE HIGH COURT HAS HELD SUCH PAYMENTS TO BE TAXABLE AS ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT. 7 . W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVE S OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE/APPELLANT COMPANY HAD ENTE RED INTO INTERNATIONAL TRANSACTIONS WITH ITS INDIAN ASSOCIATES FOR SALE OF SOFTWARE. IT IS AN UNDISPUTED FACT THAT 7 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 THE SOFTWARE SUPPLIED BY THE ASSESSEE TO THE INDIAN COMPANIES WAS NOT CUSTOMIZED SOFTWARE BUT W ERE PURCHASE D OFF - THE - SHELF. THE AGREEMENT FOR SUPPLY OF SOFTWARE WITH CIL AND CSSIL (INDIAN COMPANIES) MERELY PROVIDES THE RIGHT TO USE OFF - THE - SHELF PROGRAM AND NO COPYRIGHT IN THESE OFF - THE - SHELF SOFTWARE WAS GRANTED TO CIL AND CSSIL. THE ASSESSEE ITSELF HAD NO RI GHT TO MODIFY THE SOFTWARES PURCHASED FROM THIRD PARTIES. THE PRIMARY CONTENTIONS OF THE ASSESSEE IS THAT WHAT IS PROVIDED TO THE INDIAN AFFILIATES I.E. CIL AND CSSIL IS THE MERE RIGHTS IN THE COPYRIGHTED SOFTWARE AND NOT THE RIGHTS OF USE OF COPYRIGHT. 8. WE OBSERVE THAT THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. VS. DDIT (SUPRA) HAS IN A VERY ELABORATE MANNER EXPLAIN ED THE DIFFERENCE BETWEEN THE COPYRIGHT AND COPYRIGHTED ARTICLE AND WHETHER THE CONSIDERATION RECEIV ED ON SALE OF RIGHT TO USE OF COPYRIGHTED ARTICLE WOULD AMOUNT TO PAYMENT OF ROYALTY. THE TRIBUNAL AFTER CONSIDERING CATENA OF JUDGMENTS ON THE ISSUE CONCLUDED AS UNDER : 90. IN CONCLUSION, WE HOLD THAT PURCHASE OF SOFTWARE BY THE ASSESSEE BEING COPYRIG HTED ARTICLE IS NOT COVERED BY THE TERM ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. WHERE THE ASSESSEE DID NOT ACQUIRE ANY COPYRIGHT IN THE SOFTWARE, IS NOT COVERED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. WE FURTHER HOLD THAT AMENDED DEFINITIO N OF ROYALTY UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ROYALTY ORIGINALLY DEFINED HAS NOT BEEN AMENDED. AS PER DEFINITION OF ROYALTY UNDER DTAA, IT IS PAYMENT RECEIVED IN CONSIDERATION FOR USE OR RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC.; THUS, PURCHASE OF COPYRIGHTED ARTICLE DOES NOT FALL IN REALM OF ROYALTY. WE ALSO HOLD THAT SINCE THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF ROYALTY HAVING NOT UNDERGONE ANY AMENDMENT IN DTAA, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FOR PAYMENTS MADE FOR PURCHASE OF SOFTWARE. IN SUCH SCENARIO, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THE DEMAND CREA TED UNDER SECTION 201(1) AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT IS THUS, CANCELLED. 9 . THE TRIBUNAL FURTHER WHILE DEALING WITH THE ISSUE OF SUPPORT SERVICES PLACED RELIANCE ON THE DECISION RENDERED IN THE CASE OF SANDVIK AUSTRALIA PTY LTD . VS. DDIT REPORTED AS 31 TAXMANN.COM 256 (PUNE - TRIB.) AND HELD : 8 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 92. THE TRIBUNAL FURTHER VIDE PARA 16 HELD THAT WHERE NO TECHNICAL KNOWLEDGE WAS MADE AVAILABLE OR EXPERTISE WAS MADE AVAILABLE TO THE RECIPIENT OF INDIAN COMPANY, THEN SUCH CASE IS NOT COV ERED IN CLAUSE (G) OF PARA 3 TO ARTICLE 12 OF INDIA AND AUSTRALIA TREATY. IT WAS FURTHER OBSERVED THAT WHERE THE ASSESSEE HAD ONLY PROVIDED BACKUP FACILITIES AND IT SUPPORT SERVICES FOR SOLVING IT RELATED PROBLEMS TO ITS INDIAN SUBSIDIARIES AND WHERE NO TE CHNICAL SERVICES WERE MADE AVAILABLE, THE SAME COULD NOT BE TAXABLE IN INDIA. IT WAS FURTHER HELD THAT THE AMOUNT RECEIVED BY ASSESSEE COULD NOT BE TREATED AS ROYALTY EVEN UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT. THE TERMS OF DTAA BETWEEN INDIA AND AUSTRALIA AND INDIA AND USA ARE SIMILAR AND APPLYING THE SAID RATIO TO THE FACTS OF PRESENT CASE, WE HOLD THAT THE AMOUNT PAID BY ASSESSEE FOR INTERNET CHARGES, USE OF E - MAIL FACILITY AND BACKUP SUPPORT SERVICES IS NOT ROYALTY UNDER ARTICLE 12 OF DTAA B ETWEEN INDIA AND USA AND IS ALSO NOT ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. 10. WE FURTHER OBSERVE THAT IN THE CASE OF SYMANTEC CORPORATION VS. DCIT (SUPRA) , THE CO - ORDINATE BENCH AFTER APPLYING THE RATIO LAID DOWN IN THE CASE OF JOHN DEERE INDIA PVT. LTD. VS. DDIT (SUPRA) HELD AS UNDER : 12. THE TRIBUNAL THUS, IN THE HANDS OF RECIPIENT HAD HELD THAT WHERE THE PURCHASE OF SOFTWARE WAS COPYRIGHTED ARTICLE, THEN THE SAME WAS NOT COVERED BY THE TERM ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT AND IT WAS FURTHER HELD THAT THE AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LAW COULD NOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ORIGINALLY DEFINED HAD NOT BEEN AMENDED. APPLYING THE SAID RATIO TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT IN THE HANDS OF ASSESSEE, THE CONSIDERATION RECEIVED ON SALE OF SOFTWARE IS NOT ROYALTY UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AND IS ALSO NOT COVERED BY THE DEFINITION OF ROYALTY UNDER DTAA BETWEEN INDIA AND USA. ACCORD INGLY, THE ASSESSEE IS NOT EXIGIBLE TO TAX ON THE SAID CONSIDERATION RECEIVED IN ITS HANDS. WE REVERSE THE ORDERS OF AUTHORITIES BELOW IN THIS REGARD. 11. WE FURTHER OBSERVE THAT AS PER DTAA BETWEEN INDIA AND USA SUCH PAYMENTS MADE TO USA BASED COMPANY DOES NOT FALL WITHIN THE PURVIEW OF ROYALTY AS DEFINED IN ARTICLE 12. IT IS A WELL SETTLED LAW THAT WHERE THE PROVISIONS OF DTAA ARE BENEFICIAL TO THE ASSESSEE, THE SAME WILL PREVAIL OVER THE PROVISIONS OF THE ACT. 12. THUS, IN VIEW OF THE FACTS OF TH E CASE AND CASE LAWS DISCUSSED ABOVE, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE RECEIPTS IN THE HANDS 9 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 OF ASSESSEE ARE NOT IN THE NATURE OF ROYALTY AND HENCE, ARE NOT TAXABLE IN INDIA. ACCORDINGLY, GROUND NO. 2 RAISED IN THE APPEAL IS ALLOWED. 13. THE ASSESSEE IN APPEAL HAS RAISED GROUND NO. 1 CHALLENGING REOPENING OF ASSESSMENT. NO SUBMISSIONS WERE MADE ASSAILING REOPENING OF ASSESSMENT BY THE LD. AR, T HEREFORE, THE GROUND NO. 1 OF THE APPEAL IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ITA NO. 74/PUN/2011, A.Y. 2006 - 07) 15. THE ASSESSEE RAISED FOLLOWING GROUND IN THE ASSESSMENT YEAR 2006 - 07 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND CONSEQUENTLY THE LEARNED AO HAVE : 1 . GROUND CHALLENGING THE TAXABILITY OF CONSIDERATION FOR FACILITATING GRANT OF USER RIGHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES OF RS. 62,769,649 ERRED IN TREATING THE CONSIDERATION FOR FACILITATING GRANT OF USER RIGHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES RECEIVED BY THE APPELLANT FROM CUMMINS INDIA LIMITED (CIL) AND CUMMINS SALES AND SERVICES (INDIA) LIMITED (CSSIL) TOTALING TO RS. 62,769,649 TAXABLE A S ROYALTY IS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (DTAA) AND LEVYING TAX @ 15% ON THE SAME. ERRED IN FACTS AND LAW IN NOT APPRECIATING THAT THE APPELLANT HAD PROVIDED TO CIL AND CSSIL, THE USER RIGHTS IN THE COPYRIGHTED ARTICLE AND NOT RIGHT TO USE THE COPYRIGHT AND THUS CANNOT BE REGARDED AS ROYALTY UNDER THE PROVISIONS OF THE ACT AND THE DTAA. THE APPELLANT CRAVES LEAVE TO ADD, ALTER , VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONOURABLE INCOME - TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 16. BOTH THE SIDES UNANIM OUSLY STATED THAT THE S OLE GROUND RAISED IN APPEAL IS SIMILAR TO GROUND NO. 2 OF THE APPEAL FOR ASSESSMENT YEAR 2004 - 05. THE FACTS AND THE TRANSACTION IN THE IMPUGNED ASSESSMENT YEAR 10 ITA NO S. 73 & 74/PUN/2011, A.YS. 2004 - 05 & 2006 - 07 ARE ALSO IDENTICAL TO ASSESSMENT YEAR 2004 - 05. SINCE, THE ISSUE INVOLV ED IN APPEAL AND FACTS GERMANE TO THE ISSUE ARE SIMILAR IN ALL RESPECT IN BOTH THE IMPUGNED ASSESSMENT YEARS, THE FINDINGS GIVEN BY US IN ASSESSMENT YEAR 2004 - 05 WOULD MUTATIS MUTANDIS APPLY TO ASSESSMENT YEAR 2006 - 07, AS WELL. 17. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. 18. TO SUM UP, THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 IS PARTLY ALLOWED AND THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 05 TH DAY OF JU LY , 2019. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 05 TH JU LY , 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL, PUNE 4. THE DY. DIRECTOR OF INCOME TAX (IT) - I, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE