ADIT(IT)-1(1), MUMBAI V. M/s. ANTWERP DIAMOND BANK NV, MUMBAI

ITA 7347/MUM/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75912 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 02-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 10-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NIRJA PRADHAN
• Assessee Lawyers: S E DASTUR
• Keywords: Business income; Business expenditure; Double taxation relief; Retrospective amendment; Question of law; Non-deduction of tax; Onus to prove
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEM BER . / ITA NO. 7347 / MUM./ 2007 ( / ASSESSMENT YEAR : 20 0 4 05 ) ASSTT. DIRECTOR OF INCOME TAX CIRCLE 1(1), SCINDIA HOUSE BALLARD ESTATE, N.M. ROAD MUMBAI 400 038 .. / APPELLANT V/S M/S. ANTWERP DIAMOND BA NK NV ENGINEERING CENTRE, 9 MATHEW ROAD OPERA HOUSE, MUMBAI 400 004 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AADCA2713J / ASSESSEE BY : MR. S.E. DASTUR / REVENU E BY : MRS. NIRJA PRADHAN / DATE OF HEARING 17.02.2014 / DATE OF ORDER 14.03.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER DATED 28 TH SEPTEMBER 2007, PASSED BY THE COMMISSIONER (APPEALS) X X X I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 M/S. ANTWERP DIAMO ND BANK NV 2 (FOR SHORT 'THE ACT' ) , FOR THE ASSESSMENT YEA R 20 04 05 , ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE DATA PROCESSING COST PAID BY THE ASSESSEE DOES NOT AMOUNT TO 'ROYALTY' AND IS ONLY BUSINESS INCOME OF THE HEAD OFFICE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT INDIAN BRANCH OF THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT OF DATA PROCESSING COST OF RS.34,03,734/ - TO THE HEAD OFFICE AND THAT SECTION 40(A)(I) OF THE ACT IS NOT APPLICABLE TO THIS PAYMENT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE DATA PROCESSING EXPENSES CANNOT BE CLUBBED WITH GENERAL ADMINISTRATIVE EXPENSES AND THAT THE DEDUCTION HAS TO BE ALLOWED FOR THE ENTIRE EXPENDITURE PERTAINING TO THE INDIAN BRANCH. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.58,20,110/ - ON THE GROUND THE SAME AMOUNTS TO DOUBLE ADDITION. 2 . FACTS IN BRIEF : THE ASSESSEE , ANTWERP DIAMOND BANK N.V., IS A BANK INCORPORATED IN BELGIUM AND IS A TAX RESIDENT OF BELGIUM. THE ASSESSEE IS OPERATING THROUGH BRANCH IN INDIA AND HAS CLA IMED TREATY BENEFIT UNDER THE INDO BELGIUM DTAA. THE ASSESSEE HAS CLAIMED HEAD OFFICE EXPENSES OF ` 1,24,13,827, ATTRIBUTABLE TO ITS BANKING BUSINESS OPERATION IN INDIA. THESE EXPENSES WERE CLASSIFIED AS GENERAL ADMINISTRATIVE EXPENSES OF ` 90,10,093 AND D ATA PROCESSING COST OF ` 34,03,734. THE ASSESSEE, BEFORE THE ASSESSING OFFICER, SUBMITTED THAT THE GENERAL ADMINISTRATIVE EXPENSES AS WELL AS DATA PROCESSING COST WHICH WERE PAID TO THE HEAD OFFICE , WERE IN THE NATURE OF REIMBURSEMENT OF EXPENSES INCURRED BY THE HEAD OFFICE. AS REGARDS M/S. ANTWERP DIAMO ND BANK NV 3 THE DATA PROCESSING COST, IT WAS SUBMITTED THAT THE HEAD OFFICE HAS ACQUIRED ITS MAIN BANKING APPLICATION SOFTWARE CALLED AS F LEXCUBE FROM AN INDIAN SOFTWARE COMPANY. LATER ON, WHEN THE BRANCH WAS SET UP AT MUMBAI, THE SOFT WARE LICENSE WAS AMENDED TO ALLOW THE BRANCH TO USE S A ME SOFTWARE BY MAKING IT ASSESSABLE THROUGH THE SERVER LOCATED AT BELGIUM. SINCE THE BRANCH WAS USING THE I.T. RESOURCES SITUATED AT BELGIUM AND PAID BY THE HEAD OFFICE, THE BRANCH REIMBURSES THE HEAD O FFICE THE COST OF THE DATA PROCESSING ON PRORAT A BASIS FOR THE USE OF THE SAID RESOURCES. THE IMPORTANT TERMS OF THE AGREEMENT BETWEEN THE BRANCH AND THE HEAD OFFICE FOR THE APPLICATION OF SOFTWARE FLEXCUBE WERE AS UNDER: 2.1 THE COMPANY GRANTS TO THE LICENSEE AND THE LICENSEE HEREBY ACCEPTS THE NON EXCLUSIVE, PERSONAL, NON TRANSFERRABLE, ROYALTY FREE AND INTANGIBLE RIGHT (THE LICENSE TO USE THE SOFTWARE SYSTEM SOLELY ON AND IN CONJUNCTION WITH THE EQUIPMENTS AND SOFTWARE TOOLS AS DESCRIBED IN SCHEDUL E (1) AND (2) HERETO FOR THE PROCESSING OF ITS OWN DATA FOR ITS OWN INTERNAL BUSINESS PURPOSES AT THE SUPPORT AND PRODUCTION LOCATION DURING THE TERM OF THIS AGREEMENT SUBJECT TO THE TERMS AND CONDITION HEREIN CONTAINED. 16.1 THE LICENSEE SHALL NOT ASSIGN , SUB LICENSE OR OTHERWISE TRANSFER THE LICENSE OR THIS AGREEMENT NOR ANY RIGHT GRANTED OR TO BE GRANTED HEREUNDER BY THE COMPANY WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY . 3 . IT WAS THUS STATED THAT AS PER THE TERMS OF AGREEMENT, THE HEAD OFFICE ONL Y HAS THE NON EXCLUSIVE , NON TRANSFERRABLE RIGHT TO USE THE COMPUTER SOFTWARE BROUGHT FOR PERSONAL USE. THE PAYMENT F O R USE OF COMPUTER SOFTWARE IS NOT THE RIGHT IN THE COPYRIGHT BUT ONLY FOR THE WORK WHICH SUBSISTS IN THE COPYRIGHT. THEREAFTER, THE ASSESS EE REFERRED TO THE MEANING OF COPYRIGHT AS GIVEN IN SECTION 14 OF THE COPY RIGHT ACT, 1957 AND ALSO RELIED UPON THE DECISION OF DELHI SPECIAL BENCH OF M/S. ANTWERP DIAMO ND BANK NV 4 THE TRIBUNAL IN MOTOROLA INC. V/S D CIT, [2005] 95 ITD 269 ( S B) , TO CONTEND THAT INSOFAR AS THE BRANCH IS CONCERNED, THE PAYMENT OF COST O R PRORATA BASIS DOES NOT AMOUNT TO PAYMENT MADE FOR USE OR FOR RIGHT TO USE OF ANY COPY RIGHT OF VARIOUS NATURE. RELIANCE WAS ALSO PLACED ON THE DEFINITION OF ROYALTY GIVEN IN ARTICLE 12(3) OF INDO BELGIUM TREATY TO CO NTEND THAT WITHIN THE SAID DEFINITION , SUCH A REIMBURSEMENT OF COST PAID TO THE HEAD OFFICE CANNOT BE TREATED AS PAYMENT TOWARDS ROYALTY. 4 . THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH VARIOUS DETAILS INCLUDING THE BOOKS OF ACCOUNT OF THE HEAD OFF ICE , WHERE SUCH EXPENSES HAVE BEEN INCURRED AND ALSO ORIGINAL VOUCHERS IN SUPPORT OF THE EXPENSES, H OWEVER, THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT PERTAINING TO THE HEAD OFFICE. THE ASSESSING OFFICER, AFTER RELYING UPON THE FOLLOWING DECISIONS , HELD THAT IN SUCH A SITUATION, THE ENTIRE CLAIM OF DEDUCTION OF EXPENSES AGGREGATING TO ` 1,24,13,827, WHICH ALSO INCLUDES A SUM OF ` 34,03,734, ON ACCOUNT OF DATA PROCESSING COST SHOULD BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. I) MICOPERI S. P . A. MILANO VS DCIT, [2002] 82 ITD 369 (MUM.) ; II) DCIT V/S CAMPAIGN FRANCHISE ITA NO.3445/MUM./ 1998, ORDER DATAD 20 TH AUGUST 2003. 5 . FURTHER, AS REQUIRED BY THE ASSESSING OFFICER, THE ASSESSEE FURNISHED DETAILS OF DIRECT EXPENSES INCURRED BY THE HEAD OFFI CE , IN THE FORM OF GENERAL ADMINISTRATIVE EXPENSES OF ` 90,10,093 AND ALSO THE DATA PROCESSING COST OF ` 34,03,734. THE ASSESSING OFFICER, FROM THESE DETAILS, NOTED THAT THE NATURE OF EXPENSES GOES TO SHOW THAT THE M/S. ANTWERP DIAMO ND BANK NV 5 ASSESSEE IS PROVIDING SERVICES T O THE IND IAN BRANCH WHICH IS IN THE NATURE OF ROYALTY AS DEFINED IN SUB CLAUSE (IV) TO EXPLANATION 2 TO SECTION 9(1)(VI). HE ALSO REFERRED TO THE DEFINITION OF ROYALTY GIVEN IN ARTICLE 12(3) AND HELD THAT SUCH A PAYMENT MADE BY THE BRANCH TO THE HEAD OFFICE IS ON ACCOUNT OF SERVICES WHICH ARE IN THE NATURE OF COMMERCIAL OR SCIENTIFIC KNOWLEDGE. HE REFERRED TO THE FOLLOWING DECISION S TO ARRIVE AT A CONCLUSION THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS REIMBURSEMENT OF COST TO THE HEAD OFFICE IS NOTHING BUT PAY MENT OF ROYALTY: I ) E.P.W. DA COSTA V/S UNION OF INDIA, [1980] 121 ITR 751 (DEL.) ; II ) CIT V/S TRAVEL CORPORATION OF INDIA LTD., [1994] 209 ITR 555 (BOM.) ; AND III ) DANFOSS INDUSTRIES PVT. LTD. IN RE [2004] 268 ITR (AAR) . THUS, THE ASSESSING OFFICER CONCLUDED THAT THE PAYMENT WAS IN THE NATURE OF ROYALTY , THEREFORE, T HE ASSESSEE WAS REQUIRED TO DEDUCT THE TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195 AND, ACCORDINGLY, HE DISALLOWED T HE ENTIRE PAYMENT OF ` 1,24,13,827 UNDER SECTION 40(A)(I). 6 . THE ASSESSEE, B EFORE THE LEARNED COMMISSIONER (APPEALS), CLARIFIED THAT , INSOFAR AS THE GENERAL AND ADMINISTRATIVE EXPENSES OF ` 90,10,093 IS CONCERNED, THE SAME IS TO BE ALLOWED OR DISALLOWED UNDER SECTION 44C , BEING 5% OF THE ADJUSTED TOTAL INCOME OR THE ACTUAL EXPENDI TURE ATTRIBUTABLE TO THE INDIA OPERATION , WHICHEVER IS LESS. THE PROVISIONS OF SECTION 44C SPECIFICALLY DEFINES THE EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES AND IT WAS INTRODUCED ONLY TO GET OVER THE DEFECTS IN SCRUTINIZING THE VARIOUS SEGMENTS OF GEN ERAL AND M/S. ANTWERP DIAMO ND BANK NV 6 ADMINISTRATIVE EXPENSES INCURRED BY THE FOREIGN HEAD OFFICE , INSOFAR AS SUCH EXPENSES CAN BE RELATED TO THEIR BUSINESS OR PROFESSION IN INDIA. THE ASSESSEE CONTENDED THAT THE AUDIT WAS DONE BY THE ERNST & Y OUNG AND ALSO A CERTIFICATE FROM THEM CER TIFYING THE EXPENSES INCURRED BY THE HEAD OFFICE WHICH WAS ATTRIBUTABLE TO THE INDIAN BRANCH WAS SUBMITTED BEFORE THE ASSESSING OFFICER. INSOFAR AS GENERAL AND ADMINISTRATIVE EXPENSES ARE CONCERNED, THE ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE PURELY O N COST AS INCURRED BASIS AND, THEREFORE, THE SAME CANNOT BE CONSIDERED AS INCOME UNDER SECTION 9 OF THE ACT. FURTHER, ONCE THE ASSESSEE ITSELF HAS DISALLOWED THE HEAD OFFICE EXPENSES OF ` 98,63,746 UNDER SECTION 44C, THE ENTIRE AMOUNT OF ` 1,24,13,827 CANNOT BE ADDED , AS IT WILL RESULT INTO DOUBLE DISALLOWANCE. 7 . THE LEARNED COMMISSIONER (APPEALS), HOWEVER, AGREED TO THE AFORESAID CONTENTION OF THE ASSESSEE AND DIRECT ED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT AND DELETE THE DOUBLE DISALLOWANCE AF TER OBSERVING AND HOLDING AS UNDER: 3.10 I HAVE CONSIDERED THE ARGUMENTS OF THE AR. PERUSAL OF THE ASSESSMENT ORDER CLEARLY REVEALS THAT THE A.O. HAS MADE DISALLOWANCE OF ` 98,63,746 IN THE COMPUTATION OF INCOME AND SUBSEQUENTLY HAS AGAIN DISALLOWED ` 1,24,13,827. I, THEREFORE, AGREE WITH THE A.R. THAT THE AMOUNT OF ` 98,63,746 HAS BEEN DISALLOWED TWICE. THE A.O. IS ACCORDINGLY DIRECTED TO MODIFY THE ASSESSMENT AND DELETE THE DOUBLE DISALLOWANCE. ON THIS SCORE, THE REVENUE IS NOT IN APPEAL BEFORE US. 8 . WITH REGARD TO THE TR EATMENT OF DATA PROCESSING COST AS ROYALTY , THE ASSESSEE HEAVILY RELIED UPON THE DECISION OF THE CO ORDINATE BENCH M/S. ANTWERP DIAMO ND BANK NV 7 OF THE TRIBUNAL, MUMBAI BENCH, IN KOTAK MAHINDRA PRIMUS LTD. V/S DDIT , [2007] 11 SOT 578 (MUM.) , WHICH WAS IN RESPE CT OF INDO AUSTRALIAN DTAA. IN THIS CASE, SIMILAR KIND OF PAYMENT FOR DATA PROCESSING ON THE COMPUTER SYSTEM BELONGING TO THE FOREIGN COMPANY WAS HELD TO BE NOT ROYALTY OR FEE FOR TECHNICAL SERVICES , WITHIN THE MEANING OF ARTICLE 12 OF THE INDO AUSTRAL IAN DTAA. 9 . THE LEARNED COMMISSIONER (APPEALS), AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND ALSO THE DECISION OF THE TRIBUNAL IN KOTAK MAHINDRA PRIMUS LTD. (SUPRA), HELD THAT THE DATA PROCESSING COST PAID BY THE ASSESSEE TO THE HEAD OFFICE DOES NOT AMO UNT TO ROYALTY AND, HENCE, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE AND, CONSEQUENTLY, NO DISALLOWANCE UNDER SECTION 40(A)(I) CAN BE MADE. HE FURTHER HELD THAT THE DATA PROCESSING COST DOES NOT FALL WITHIN THE AMBIT OF GENERAL ADMINISTRATIVE EXPENS ES ALSO UNDER SECTION 44C , BECAUSE THE DATA PROCESSING IS AN EXPENDITURE WHICH IS DIRECTLY RELATED TO THE BUSINESS OF BANKING AND IS, THEREFORE, OUTSIDE THE PURVIEW OF GENERAL ADMINISTRATIVE EXPENSES. THUS, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE SU M OF ` 34,03,734 ON ACCOUNT OF DATA PROCESSING COST AS BUSINESS EXPENSES AND FOR THE BALANCE GENERAL ADMINISTRATIVE EXPENSES OF ` 90,10,093 , HE DIRECTED THE ASSESSING OFFICER TO ALLOW IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 44C. NOW THE REVENUE IS IN APPEAL ON THE ISSUE OF DISALLOWANCE OF DATA PROCESSING COST. 10 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, MRS. NIRJA PRADHAN, BEFORE US, SUBMITTED THAT AS PER THE ASSESSEES OWN SUBMISSIONS BEFORE THE ASSESSING OFFICER, AS WELL AS BEFORE THE LEARNED COMMISSIO NER (APPEALS), TH E DATA PROCESSING COST OF ` 34,03,734 WAS PAID BY THE HEAD OFFICE TO THE INDIAN COMPANY FOR THE LICENSE TO USE M/S. ANTWERP DIAMO ND BANK NV 8 BANKING APPLICATION SOFTWARE F LEXICUBE , WHICH WAS INITIALLY GRANTED TO THE HEAD OFFICE AND LATER ON WHEN THE INDIAN BRANCH WAS SET UP THE SAID AGREEMENT WAS AMENDED TO ALLOW THE BRANCH TO USE SUCH SOFTWARE. THUS, THE PAYMENT WAS MADE BY THE ASSESSEE FOR THE RIGHT / LICENSE TO USE APPLICATION SOFTWARE AND SOFTWARE TOOLS PROVIDED BY THE INDIAN COMPANY FOR EFFICIENT RUNNING OF ITS B USINESS. SHE FURTHER ARGUED THAT EVEN IF THE SERVER WAS AT BELGIUM AND THERE WAS NO DIRECT POSSESSION OF ANY TECHNOLOGY OR EQUIPMENT O R TRANSFER OF ANY RIGHT , THEN ALSO BY VIRTUE OF EXPLANATION 4, 5 AND 6 TO SECTION 9(1)(VI) INTRODUCED BY THE FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE 1976 SUCH A PAYMENT WILL FALL UNDER THE AMBIT OF ROYALTY OR FEE FOR TECHNICAL SERVICES . SHE ALSO REFERRED TO THE DECISION OF THE MADRAS HIGH COURT IN POOMPHOR SHIPPING CORPORATION , ORDER DATED 9 TH OCTOBER 2 013, IN TC(A) NO.2206 TO 2208/2006, WHEREIN THE HIGH COURT HELD THAT UNDER CLAUSE (IVA) TO EXPLANATION 2 TO SECTION 9(1)(VI), THE ROYALTY AMOUNTS TO CONSIDERATION PAID FOR USE OR RIGHT TO USE , IRRESPECTIVE OF THE FACT THAT THERE WAS ANY TRANSFER OR NOT. TH E SAME RESULT O R INTERPRETATION OF EXPLANATION 5 INSERTED BY THE FINANCE ACT, 20 12 WILL APPLY UNDER ARTICLE 12 OF DTAA ALSO, BECAUSE E VEN IF THE POSSESSION OF SOFTWARE IS WITH THE OWNER AND HE HAS PARTED WITH THE RIGHT TO USE , THEN THE CONSIDERATION THEREO F CONSTITUTES ROYALTY ONLY. SHE AGAIN REFERRED TO ANOTHER DECISION OF THE MADRAS HIGH COURT IN VERIZON COMMUNICATION SINGAPORE PTE. PASSED IN TAX CASE APPEAL NO.147 TO 149 / 2011, ORDER DATED 7 TH NOVEMBER 2013 AND ALSO THE DECISION OF KARNATAKA HIGH COUR T IN CIT V/S WIPRO LTD. [2012] 203 TAXMAN 621 (KAR.) , WHEREIN IT WAS HELD THAT GRANTING OF RIGHT TO USE OF ONLINE DATABASE AND OTHER SOFTWARE SERVICES IS NOTHING BUT ROYALTY . SHE SUBMITTED THAT THIS DECISION HAS BEEN FOLLOWED BY THE TRIBUNAL, MUMBAI M/S. ANTWERP DIAMO ND BANK NV 9 BENC HES ALSO IN GARTENERIRLAND, ITA NO.7101/MUM./2010, ORDER DATED 24 TH JULY 2013. THUS, THE CLAIM OF THE ASSESSEE THAT THE PAYMENT WAS IN THE NATURE OF REIMBURSEMENT CANNOT BE ACCEPTED WITHOUT ANYTHING ON RECORD TO SHOW THAT THE AMOUNT PAYABLE DOES NOT HAVE A N Y INCOME ELEMENT OR REPRESENT PURELY REIMBURSEMENT OF COST. THE ONUS TO PROVE THAT THERE IS NO ELEMENT OF PROFIT O N SUCH REIMBURSEMENT IS ALWAYS UPON THE ASSESSEE. NO BASIS HAS BEEN GIVEN AS TO HOW THE DATA PROCESSING COST HAS BEEN ALLOCATED BY THE HEAD O FFICE TO THE VARIOUS BRANCHES IN THE PRORAT A MANNER. SHE FURTHER POINTED OUT THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 06 ON THE ISSUE OF DISALLOWANCE OF PAYMENT MADE BY THE BRANCH TO THE HEAD OFFICE TOWARDS CREDIT ANA LYSIS AND OTHER SPECIFI C SERVICES, THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS). ALTERNATIVELY, SHE SUBMITTED THAT THE DATA PROCESS ING COST SHOULD BE CLUBBED WITH GENERAL ADMINISTRATIVE EXPENSES , THEN THE TAXABILITY OF THE SAME NEEDS TO BE LOOKED INTO UNDER SECTION 44C. T HE RESTRICTIVE LIMIT ENSHRINED IN SECTION 44C WILL APPLY TO THE DATA PROCESSING COST ALSO. 11 . PER CONTRA, THE LEARNED SENIOR COUNSEL, MR. SOLI DASTUR, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT INSOFAR AS THE LEARNED DEPART MENTAL REPRESENTATIVES SUBMISSION THAT NO BASIS OF REIMBURSEMENT OF EXPENDITURE HAS BEEN GIVEN CANNOT BE AGITATED AT THIS STAGE, BECAUSE NO SUCH GROUND HAS BEEN RAISED BY THE REVENUE. THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN A VERY CLEAR CUT FINDING I N THIS REGARD IN PARA 3.13 , WHEREIN IT HAS BEEN STATED THAT THE EXPENDITURE HAS BEEN REIMBURSED ON THE BASIS OF ACTUAL EXPENSES AS CERTIFIED BY THE ERNST & YOUNG AFTER CARRYING OUT DETAIL AUDIT. ONCE THIS FACTUM HAS NOT BEEN CHALLENGED BY THE REVENUE, THE LEARNED DEPARTMENTAL M/S. ANTWERP DIAMO ND BANK NV 10 REPRESENTATIVE CANNOT AGITATE ON THIS SCORE. THE FACT OF NON PRODUCTION OF BOOKS OF ACCOUNT HAS ALSO BEEN DEALT BY THE LEARNED COMMISSIONER (APPEALS) AND W HY THE PROVISIONS OF SECTION 44C WILL APPLY , HAS ALSO BEEN CLEARLY ADJUDICATED A ND, THEREFORE, NO OBJECTION CAN BE RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WITHOUT RAISING ANY SPECIFIC GROUND. THE ONLY ISSUE INVOLVED IN GROUND NO.1, 2 AND 3 , IS WHETHER THE DATA PROCESSING COST PAID BY THE ASSESSEE TO THE HEAD OFFICE AS REIMBU RSEMENT ON PRORATA BASIS , AMOUNTS TO ROYALTY OR NOT AND CONSEQUENTLY, WHETHER SUCH A DATA PROCESSING EXPENSES CAN BE CLUBBED WITH GENERAL ADMINISTRATIVE EXPENSES. EXPLAINING UPON THE ISSUE RAISED IN THE GROUNDS OF APPEAL, H E SUBMITTED THAT THE HEAD OFFIC E HAS ACQUIRED THE SOFTWARE FROM AN INDIAN COMPANY FOR ITS USAGE IN THE BANKING BUSINESS. SUCH A USAGE OF SOFTWARE HAS ALSO BEEN ALLOWED TO THE BRANCH AND WHATEVER COST IS INCURRED BY THE HEAD OFFICE FOR THE PAYMENT OF SUCH SOFTWARE , THE SAME IS ALLOCATED TO THE VARIOUS BRANCHES ON PRORATA BASIS . THERE IS NO SCIENTIFIC KNOWLEDGE OR KNOWHOW PROVIDED BY THE HEAD OFFICE TO THE BRANCH. THE DECISION OF THE CO ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN KOTAK MAHINDRA PRIMUS LTD. (SUPRA) AS REFERRED AND RELIED UPON BY THE LEARNED COMMISSIONER (APPEALS), IS CLEARLY APPLICABLE AND HE ALSO REFERRED TO THE RELEVANT FACTS AND THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE SAID DECISION. HE FURTHER REFERRED TO THE DEFINITION OF ROYALTY GIVEN IN ARTICLE 12(3) OF INDO BELGI UM DTAA AND SUBMITTED THAT THE USAGE OF DATA PROCESSING BY THE BRANCH OF THE SOFTWARE WHICH HAS BEEN ACQUIRED BY THE HEAD OFFICE AND PERMITTED TO BE USED BY THE BRANCH OFFICE , CANNOT BE HELD TO BE FOR THE USE OF OR THE RIGHT TO USE ANY OF THE TERMS USE D IN THE SAID ARTICLE. IT CANNOT BE AKIN TO ANY OF THE TERMS MENTIONED IN THE SAID ARTICLE. EVEN UNDER THE EXPLANATION TO SECTION M/S. ANTWERP DIAMO ND BANK NV 11 9 (1)(VI), THE COST OF DATA PROCESSING CANNOT BE EQUATED WITH PAYMENT OF ROYALTY . OTHERWISE ALSO, T HE EXPLANATION 4 AND 5 WHICH HAVE BEEN BROUGHT IN STATUTE BY THE FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE 1976, WOULD NOT BE APPLICABLE IN THIS CASE, BECAUSE THE DTAA CONTAINS THE EXHAUSTIVE DEFINITION OF ROYALTY AND WILL NOT G E T AFFECTED BY THE AMENDMENT. THE AME NDMENT BROUGHT IN THE STATUTE BY THE FINANCE ACT, 2012, CANNOT BE READ IN THE TREATY . IN SUPPORT OF THIS CONTENTION, MR. DASTUR, RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S SIEMENS AKTIONGESELLSCHAFT, [ 2009 ] 310 ITR 320 (BO M.) AND THE DECISION IN DIT V/S NOKIA NETWORK, [2012] 253 CTR (DEL.) 417. HE ALSO REFERRED TO THE OECD COMMENTARY AND DREW OUR SPECIFIC ATTENTION TO PARA 2(II) , TO CONTEND THAT THE ARTICLE DEALING WITH THE ROYALTY DOES NOT APPLY TO THE PAYMENTS FOR THE NEW INFORMATION OBTAINED AS A RESULT OF PERFORMING SERVICES AT THE REQUEST OF THE PAYER. ONCE THE PAYMENT IS NOT ON ACCOUNT OF ROYALTY, THEN , THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT ARISE. AS REGARDS THE DECISION OF MADRAS HIGH COURT AS R ELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, HE POINTED OUT THAT THE ISSUE INVOLVED IN THAT CASE WAS ENTIRELY DIFFERENT WHICH IS EVIDENT FROM THE SUBSTANTIAL QUESTION OF LAW AS FORMULATED BY THE HIGH COURT. THE OTHER DECISION AS RELIED UPON BY TH E LEARNED DEPARTMENTAL REPRESENTATIVE WAS ALSO DISTINGUISHED BY THE LEARNED SENIOR COUNSEL. THUS, HE SUBMITTED THAT THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) THAT REIMBURSEMENT OF DATA PROCESSING COST TO THE HEAD OFFICE DOES N OT AMOUNT TO PAYMENT OF ROYALTY, IS FACTUALLY AND LEGALLY CORRECT WHICH NEEDS TO BE UPHELD. 12 . WITH REGARD TO GROUND NO.3, HE SUBMITTED THAT THE DATA PROCESSING IS A SPECIFIC TASK , WHEREIN THE DATA IS SENT BY THE BRANCH TO M/S. ANTWERP DIAMO ND BANK NV 12 THE HEAD OFFICE FOR GETTING IT PROCESSED. THE GENERAL AD MINISTRATIVE EXPENSES AS STIPULATED IN CLAUSE (IV) OF SECTION 44C , ONLY REFERS TO EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES WHEREIN , INCLUSIVE DEFINITION HAS BEEN GIVEN. WHAT IS MEANT BY EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES, H AS BEEN ELABORATE LY DEALT UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN IAC V/S GOODRICK E GROUP LTD., [1985] 12 ITD 1 AN D THE DDIT (IT) V/S STOCK ENGINEER AND CONTRACTORS B.V., [2009] 27 SOT 452 (MUM.). IN THESE DECISIONS, A CLEAR CUT DEMARCATION HAS BEEN MADE WITH REGARD TO THE GENERAL ADMINISTRATIVE EXPENSES AND THE SPECIFIC EXPENSES. 13 . AS REGARDS LEARNED DEPARTMENTAL REPRESENTATIVES RELIANCE ON THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 200 5 06, HE SUBMITTED THAT THE ISSUE OF DATA PROCESSING WAS NOT BEFORE TH E TRIBUNAL AND IN FACT THE LEARNED COMMISSIONER (APPEALS) IN THAT YEAR VIDE PARA 5 AN D 6, HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE REVENUE HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL. THUS, THIS ISSUE ALSO STANDS CONCLUDED IN FAVOUR OF THE ASSESSEE IN THE ASSESSMENT YEAR 2005 06. 14 . WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER . THE ASSESSING OFFICER HAD DISALLOWED THE REIMBURSEMENT OF EXPENSES PA ID BY THE BRANCH OFFICE TO THE HEAD OFFICE, WHICH CONSISTED OF GENERAL ADMINISTRATIVE EXPENSES OF ` 90,10,093 AND DATA PROCESSING COST OF ` 34,03,734 , ON THE GROUND THAT FIRSTLY, THE ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNT OF THE HEAD OFFICE FOR CLARIF YING THE NATURE OF HEAD OFFICE EXPENSES INCURRED AND SECONDLY, THE ENTIRE REIMBURSEMENT OF EXPENDITURE RELATES TO PAYMENT TOWARDS ROYALTY . THE LEARNED COMMISSIONER (APPEALS) HAS ACCEPTED M/S. ANTWERP DIAMO ND BANK NV 13 THE ASSESSEES CONTENTION THAT INSOFAR AS THE BOOKS OF ACCOUNT OF T HE BRANCH OFFICE WAS CONCERNED, THE SAME WAS PRODUCED BEFORE THE ASSESSING OFFICER AND AS REGARDS PRODUCTION OF BOOKS OF ACCOUNT OF THE HEAD OFFICE IS CONCERNED , THOSE ARE NOT REQUIRED AS THE PROVISIONS OF SECTION 44C SPECIFICALLY PROVIDES A SPECIFIC CEILI NG UNDER SUCH CIRCUMS TANCES AND, THEREFORE, INSOFAR AS GENERAL ADMINISTRATIVE EXPENSES OF ` 90,10,093 ARE CONCERNED, THE SAME WILL FALL WITHIN THE PURVIEW OF SECTION 44C. THE ASSESSEE HAS ALSO PRODUCED CERTIFICATE FROM THE ERNST & YOUNG FOR ASCERTAINING T HE EXACT NATURE OF EXPENSES UNDER BOTH THE HEADS , WHICH HAS NOT BEEN DISPUTED BY THE REVENUE IN GROUNDS OF APPEAL , EXCEPT FOR IN THE ARGUMENTS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. INSOFAR AS THE DISALLOWANCE OF ` 90,10,093 ON ACCOUNT OF REIMB URSEMENT OF GENERAL ADMINISTRATIVE EXPENSES IS CONCERNED, THE SAME IS NOT IN DISPUTE BEFORE US. THE ONLY ISSUE INVOLVED BEFORE US, IS DISALLOWANCE OF DATA PROCESSING COST OF ` 34,03,734 , BY TREATING THE SAID PAYMENT AS ROYALTY . THE LEARNED DEPARTMENTAL R EPRESENTATIVES CASE HAS BEEN THAT, FIRSTLY, NO BASIS HAS BEEN GIVEN AS TO HOW THESE EXPENSES HAVE BEEN ASSIGNED OR ALLOCATED AMONGST THE BRANCHES , BECAUSE THE ASSESSEE COULD NOT PRODUCE THE DETAILS OF SUCH EXPENSES INCURRED BY THE HEAD OFFICE AND SECONDLY , THE PAYMENT MADE BY THE BRANCH TO THE H.O. FALL S WITHIN THE DEFINITION OF ROYALTY NOT ONLY UNDER SECTION 9(1)(VI) R/W EXPLANATION THERETO , BUT ALSO UNDER ARTICLE 12(3) OF THE DTAA. AS REGARDS THE FIRST OBJECTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE IS CONCERNED, WE FIND THAT THE ALLOCATION OF THE EXPENSES HAS BEEN DONE ON THE BASIS OF AUDIT CONDUCTED BY THE ERNST & YOUNG , WHICH HAD ISSUED A CERTIFICATE CERTIFYING THE QUANTUM AND ALSO THE BASIS OF THE ALLOCATION OF EXPENSES ON IN WHICH THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN A VERY M/S. ANTWERP DIAMO ND BANK NV 14 CATEGORICAL FINDING , WHICH HAS NOT BEEN CHALLENGED BY THE REVENUE IN ITS GROUNDS OF APPEAL. HENCE, SUCH AN OBJECTION AS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS NOT TENABLE AND IS, ACCORDINGLY, REJECTED. 15 . NOW, COMING TO THE MAIN ISSUE I.E., WHETHER THE REIMBURSEMENT OF DATA PROCESSING COST OF ` 34,03,734 , AMOUNTS TO ROYALTY OR NOT, WE FIND FROM THE RECORD THAT THE ASSESSEE IS ENGAGED IN THE BANKING BUSINESS AND OPERATES IN INDIA THROUGH BRANCH IN MUMBAI. IT HAS ACQUIRED A BANKING APPLICATION SOFTWARE NAMED AS F LEXCUBE FROM AN INDIAN SOFTWARE COMPANY WHICH IS EXCLUSIVELY USED FOR THE BANKING PURPOSE BY THE ASSESSEE ALL OVER THE WORLD. WHEN THE MUMBAI BRANCH WAS SET UP, THE BRANCH WAS ALLOWED TO USE THE SA ID SOFTWARE BY MAKING IT ASSESSABLE THROUGH SERVERS LOCATED AT BELGIUM. THE BRANCH SENDS ITS DATA TO THE BELGIUM SERVER FROM WHERE THE DATA GETS PROCESSED AS PER THE REQUIREMENT OF THE BANKING OPERATIONS. AS PER THE TERMS OF AGREEMENT BETWEEN THE BRANCH AN D THE HEAD OFFICE FOR THE USAGE OF SOFTWARE BY THE BRANCH, WHICH HAS BEEN INCORPORATED ABOVE, IT IS EVIDENT THAT THE HEAD OFFICE ONLY HAS THE NON EXCLUSIVE NON TRANSFERRABLE RIGHTS TO USE THE COMPUTER SOFTWARE BROUGHT FOR PERSONAL USE AND CLAUSE 16 OF THE SAID AGREEMENT SPECIFICALLY PROVIDES THAT THE HEAD OFFICE DOES NOT HAVE ANY RIGHT TO ASSIGN , SUB LICENSE OR OTHERWISE TRANSFER THE LICENSE OF THIS AGREEMENT. THUS, THE PAYMENT BY THE BRANCH FOR USE OF COMPUTER SOFTWARE IS NOT THE RIGHT IN THE COPY RIGHT BU T ONLY FOR DOING THE WORK FROM THE SAID SOFTWARE WHICH SUBSIST IN THE COPY RIGHT OF THE SOFTWARE. THE BRANCH IS USING THE COMPUTER SOFTWARE AND THE I.T. RESOURCES INSTALLED AT BELGIUM FOR WHI CH THE PAYMENT IS MADE BY THE HEAD OFFICE TOWARDS THE USE OF SUCH SOFTWARE LICENSE. SINCE THE BRANCH IS USING THE SAME SOFTWARE FOR THE PURPOSE OF M/S. ANTWERP DIAMO ND BANK NV 15 BUSINESS OPERATIONS, THE H EAD OFFICE ALLOCATES T HE SAID EXPENDITURE ON A PRORATA BASIS FOR THE USE OF THE SAID RESOURCES WHICH IS BEING REIM BURSED BY THE BRANCH TO THE HEAD O FICE. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS SOUGHT THE BENEFIT OF TREATY BETWEEN INDIA AND BELGIUM AND HAD SPECIFICALLY RELIED UPON THE DEFINITION OF ROYALTY AS GIVEN IN THE ARTICLE 12. CLAUSE (A) OF PARA 3 OF ARTICLE 12 , WHI C H DEFINES THE TERM ROY ALTY IN THE FOLLOWING MANNER: 3(A) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FI LMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE . 16 . THE ABOVE DEFINITION OF ROYALTY THUS PROVIDES THAT , WHEN THE PAYMENT OF ANY KIND IS RECEIVED AS A CONSIDERATION FOR USE OF OR THE RIGHT TO USE OF ANY OF THE COPY RIGHT OF ANY ITEM OR FOR VARIOUS TERMS USED IN THE SAID ARTICLE, THEN ONLY IT CAN BE HELD TO BE FOR THE PURPOSE OF ROYALTY . THE SAID DEFINITION OF ROYALTY IS EXHAUSTIVE AND NOT INC LUSIVE AND, THEREFORE, IT HAS TO BE GIVEN THE MEANING AS CONTAINED IN THE ARTICLE ITSELF AND NO OTHER MEANING SHOULD BE LOOKED UPON. IF THE ASSESSEE IS CLAIMING THE APPLICATION OF THE DTAA, THEN THE DEFINITION AND SCOPE OF ROYALTY GIVEN IN THE DOMESTIC L AW, IN THE PRESENT CASE, SECTION 9 (1)(VI) SHOULD NOT BE READ INTO OR LOOKED UPON. T HE CHARACTER OF PAYMENT TOWARDS ROYALTY DEPENDS UPON THE INDEPENDENT USE OR THE RIGHT TO USE OF THE COMPUTER SOFTWARE , WHICH IS A KIND OF COPY RIGHT. IN THE PRESENT CASE , THE PAYMENT MADE BY THE BRANCH IS NOT FOR USE OF OR RIGHT TO USE OF SOFTWARE WHICH IS BEING EXCLUSIVELY DONE BY M/S. ANTWERP DIAMO ND BANK NV 16 THE HEAD OFFICE ONLY , INSTALLED IN BELGIUM. THE BRANCH DOES NOT HAVE ANY INDEPENDENT RIGHT TO USE OR CONTROL OVER SUCH MAIN FRAME OF THE C OMPUTER SOFTWARE INSTALLED IN BELGIUM , BUT IT SIMPLY SENDS THE DATA TO THE HEAD OFFICE FOR GETTING IT PROCESSED. INSOFAR AS THE BRANCH IS CONCERNED, IT IS ONLY REIMBURSING THE COST OF PROCESSING OF SUCH DATA TO THE H EAD OFFICE, WHI CH HAS BEEN ALLOCATED ON PRORATA BASIS. SUCH REIMBURSEMENT OF PAYMENT DOES NOT FALL WITHIN THE AMBIT OF DEFINITION OF ROYALTY WITH IN THE ARTICLE 12(3)(A). TO FALL WITHIN ITS AMBIT, THE BRANCH SHOULD HAVE EXCLUSIVE AND INDEPENDENT USE OR RIGHT TO USE THE SOFTWARE AND FOR SUCH USA GE, PAYMENT HAS TO BE MADE IN CONSIDERATION THEREOF. IT IS NOT THE CASE OF THE REVENUE THAT THE H EAD OFFICE HAS PROVIDED ANY COPY RIGHT OF SOFTWARE OR ANY COPYRIGHTED ARTICLE DEVELOPED BY THE HEAD OFFICE FOR THE EXCLUSIVE USE OF THE ASSESSEE FOR , WHICH THE ASSESSEE IS MAKING THE PAYMENT ALONG WITH THE MARK UP EXCLUSIVELY FOR THE PURPOSE OF ROYALTY. IF THE PAYMENT FOR LICENSE FOR THE SOFTWARE WHICH IS INSTALLED IN THE HEAD OFFICE IS BEING MADE BY THE H EAD OFFICE , THEN ANY ALLOCATION OF COST AND REIMBURSEMENT THEREOF BY THE BRANCH TO THE HEAD OFFICE CANNOT BE TERMED AS INDEPENDENT PAYMENT FOR THE PURPOSE OF ROYALTY. TO FALL WITHIN THE AMBIT OF ROYALTY UNDER ARTICLE, THE PAYMENT SHOULD BE EXCLUSIVELY QUA THE USE OR THE RIGHT TO USE THE SOFTWARE EXCLUSIVELY BY THE BRANCH. THE CHARACTER OF THE PAYMENT UNDER THE ROYALTY TRANSACTIONS DEPENDS UPON THE RIGHTS THAT THE TRANSFEREE ACQUIRES IN RELATION TO THE USE AND EXPLOITATION OF THE SOFTWARE PROGRAMME. HERE, THERE IS NO SUCH RIGHT WHICH HAS BEEN ACQUIRED BY THE BRA NCH IN RELATION TO THE USAGE OF SOFTWARE , BECAUSE THE HEAD OFFICE ALONE HAS THE EXCLUSIVE RIGHT OF THE LICENSE TO USE THE SOFTWARE. THUS, THE REIMBURSEMENT OF THE DATA PROCESSING COST TO THE M/S. ANTWERP DIAMO ND BANK NV 17 H EAD OFFICE DOES NOT FALL WITHIN THE AMBIT OF DEFINITION OF ROYA LTY UNDER ARTICLE 12(3)(A). 17 . THE LEARNED COMMISSIONER (APPEALS) AND THE LEARNED SENIOR COUNSEL HAVE STRONGLY RELIED UPON THE DECISION OF THE CO ORDINATE BENCH OF THE TRIBUNAL IN KOTAK MAHINDRA PRIMUS LTD. (SUPRA). ON A PERUSAL OF THE SAID DECISION, IT IS SEEN THAT THE CONCLUSION DRAWN BY THE TRIBUNAL, IS DIRECTLY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE ALSO, WHICH IS EVIDENT FROM THE FOLLOWING OBSERVATIONS AND CONCLUSIONS DRAWN BY THE TRIBUNAL: 11. THE CONSIDERATION OF PAYMENT IS ONLY THIS DATA P ROCESS WORK. NO PART OF THIS PAYMENT CAN BE SAID TO BE FOR THE USE OF SPECIALIZED SOFTWARE ON WHICH DATA IS PROCESSED OR FOR THE USE OF MAINFRAME COMPUTER BECAUSE THE INDIAN COMPANY DOES NOT HAVE ANY INDEPENDENT RIGHT TO USE THE COMPUTER OR EVEN PHYSICAL A CCESS TO THE MAINFRAME COMPUTER, SO AS TO USE THE MAINFRAME COMPUTER OR THE SPECIALIZED SOFTWARE. ALL THAT THE RIGHT IS FOR PROCESSING OF DATA, AND THE USE OF MAINFRAME COMPUTER IS PERMITTED ONLY FOR THAT PURPOSE. THE INDIAN COMPANY CAN FEED THE RAW DATA I N THE MAINFRAME COMPUTER IN AUSTRALIA, WITH THE HELP OF THE TELECOMMUNICATION LINK, AND THE OUTPUT DATA, AFTER DUE PROCESSING IS TRANSMITTED BACK TO THE INDIAN COMPANY. THERE IS NO PRIVILEGE OR RIGHT GRANTED TO THE INDIAN COMPANY BY THE AUSTRALIAN COMPANY. THE CONTROL OF THE INDIAN COMPANY IS ONLY ON THE INPUT TRANSMISSION AND THE RIGHT IS TO GET THE OUTPUT PROCESSED DATA BACK. THE ACTUAL PROCESSING OF DATA IS THE EXCLUSIVE CONTROL OF THE AUSTRALIAN COMPANY AND IT IS FOR THIS WORK THAT THE AUSTRALIAN COMPAN Y GETS PAID. IN OUR CONSIDERED VIEW, THEREFORE, IN ESSENCE THE IMPUGNED PAYMENT IS MADE TO THE AUSTR ALIAN COMPANY IN CONSIDERATION OF ITS PROCESSING OF DATA BELONGING TO THE INDIAN COMPANY. 14. AS FAR AS THE SCOPE OF ARTICLE 12(3)(A) IS CONCERNED, WE FIND THAT IT COVERS ONLY A PAYMENT FOR THE USE OF, OR THE RIGHT TO USE OF, ANY COPYRIGHT, PATENT, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, TRADEMARK, OR OTHER LIKE PROPERTY OR RIGHT. THE CASE OF THE REVENUE IS THAT THE PAYMENT IS MADE FOR THE USE OF S PECIALIZED SOFTWARE WITH THE HELP OF WHICH DATA IS PROCESSED. WE M/S. ANTWERP DIAMO ND BANK NV 18 ARE NOT PERSUADED. AS WE HAVE CONCLUDED EARLIER IN THIS ORDER, ON THE FACTS OF THIS CASE, THE PAYMENT MADE BY THE INDIAN COMPANY IS NOT FOR THE USE OF, OR RIGHT TO USE OF, SOFTWARE, THE PAYME NT IS FOR DATA PROCESSING. BE THAT AS IT MAY, EVEN IF STAND OF THE REVENUE IS TO BE UPHELD AND IT IS TO BE CONCLUDED THAT THE PAYMENT IS MADE FOR SOFTWARE PER SE, THAT DOES NOT LEAD TO TAXABILITY OF RECEIPT IN THE .HANDS OF THE AUSTRALIAN COMPANY EITHER. I T IS ALSO BY NOW SETTLED THAT THE PAYMENT FOR SOFTWARE IS FOR A COPYRIGHTED ARTICLE AND NOT COPYRIGHT PER SE, AND, THEREFORE, IS NOT COVERED BY THE SCOPE OF PAYMENT FOR COPYRIGHT. THE AUTHORITY FOR THIS PROPOSITION IS CONTAINED IN SPECIAL BENCH DECISION IN THE CASE OF MOTOROLA INC. V. DY. CIT (2005) 95 ITD 269 (DEL)(SB), SAMSUNG ELECTRONICS COMPANY LTD. V. ITO (2005) 94 ITD 91 (BANG), AND LUCENT TECHNOLOGIES HINDUSTAN LTD. V. ITO (2005) 92 ITD 366 (BANG). IT IS NOT EVEN THE REVENUES CASE THAT THE PAYMENT IN QUESTION IS NOT (SIC) FOR THE USE OF, OR RIGHT TO USE OF, PATENT, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR TRADE MARK. IN ANY EVENT, HAVING PERUSED THESE CLASSIFICATIONS AND HAVING CONSIDERED THE FACTS BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE PAYMENT DOES NOT FIT INTO ANY OF THESE CLASSIFICATIONS. IT IS, HOWEVER, CONTENDED THAT THE IMPUGNED PAYMENT IS COVERED BY THE RESIDUARY CLAUSE, I.E., 'OTHER LIKE PROPERTY OR RIGHT'. IT IS CONTENDED THAT BY MAKING PAYMENT OF US $ 60,000 PER ANNUM, THE INDIAN COMPANY GETS A VALUABLE PROPERTY AND RIGHT AS THE PAYMENT CANNOT BE SAID TO. HAVE BEEN MADE IN VACUUM AND WITHOUT ANY CONSIDERATION. THIS PLEA ALSO DOES NOT IMPRESS US. IT IS NOT EVERY PROPERTY OR RIGHT WHICH CAN BE COVERED BY THESE EXPRESSIONS APPEARING IN THE END OF ARTICLE 12(3)(A), BECAUSE, FOLLOWING THE PRINCIPLES OF EJUSDEM GENERIS MEANING OF THE GENERAL WORDS FOLLOWING THE SPECIFIC WORDS HAVE TO TAKE COLOUR FROM THE SPECIFIC WORDS PRECEDING IT. WHEN THAT PROPERTY OR RIGHT, EVEN IF IT SO EX ISTS, IS NOT OF THE NATURE OF ANY OF THE SPECIFIC CATEGORIES SET OUT IN ARTICLE 12(3)(A), IT CANNOT BE COVERED BY THE GENERAL WORDS FOLLOWING THOSE CATEGORIES EITHER. FOR ALL THESE REASONS, WE ARE OF THE CONSIDERED VIEW THAT PROVISIONS OF ARTICLE 12(3)(A) CANNOT BE INVOKED ON THE FACTS OF THE CASE BEFORE US. 15. THAT TAKES US TO THE QUESTION WHETHER THE PROVISIONS OF ARTICLE 12(3)(B), AS RELIED UPON BY THE REVENUE AUTHORITIES, CAN BE INVOKED ON THE FACTS OF THE PRESENT CASE. ARTICLE 12(3)(B) CAN APPLY ONLY WHEN THE PAYMENT IN QUESTION CAN BE HELD TO BE PAYMENT FOR 'THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT'. THIS CONDITION CAN ONLY BE SATISFIED WHEN IT IS ESTABLISHED THAT THE IMPUGNED PAYMENT IS MADE FOR THE USE OF, OR RIGHT TO USE OF, MAINFRAME COMPUTER. THE M/S. ANTWERP DIAMO ND BANK NV 19 INDIAN COMPANY DOES NOT HAVE ANY CONTROL OVER, OR PHYSICAL ACCESS TO, THE MAINFRAME COMPUTER IN AUSTRALIA. THERE CANNOT, THEREFORE, BE ANY QUESTION OF PAYMENT FOR USE OF THE MAINFRAME COMPUTER. IT IS INDEED TRUE THAT THE USE OF MAINFRAME COMPUTER IS INTEGRAL TO THE DATA PROCESSING BUT WHAT IS IMPORTANT TO BEAR IN MIND IS THE FACT THAT THE PAYMENT IS NOT FOR THE USE OF MAINFRAME COMPUTER PER SE, THAT THE INDIAN COMPANY DOES NOT HAVE ANY CONTROL OVER THE MAINFRAME COMPUTER OR PHYSICAL ACCESS TO THE MAINFRAME COMPUTER, AND THAT THE PAYMENT IS FOR ACT OF SPECIALIZED DATA PROCESSING BY THE AUSTRALIAN COMPANY. USE OF MAINFRAME COMPUTER IN THE COURSE OF PROCESSING OF DATA IS ONE OF THE IMPORTANT ASPECTS OF THE WHOLE ACTI VITY BUT THAT IS NOT THE PURPOSE OF, AND CONSIDERATION FOR, THE IMPUGNED PAYMENT BEING MADE TO AUSTRALIAN COMPANY. THE PAYMENT, AS WE HAVE OBSERVED EARLIER, IS FOR THE ACTIVITY OF SPECIALIZED DATA PROCESSING. IT IS NEITHER PRACTICABLE, NOR PERMISSIBLE, TO ASSIGN MONETARY VALUE TO EACH OF THE SEGMENT OF THIS ECONOMIC ACTIVITY AND CONSIDER THAT AMOUNT IN ISOLATION, FOR THE PURPOSE OF DECIDING CHARACTER OF THAT AMOUNT. THEREFORE, NEITHER THE IMPUGNED PAYMENT CAN BE SAID TO BE TOWARDS USE OF, OR RIGHT TO USE OF , THE MAINFRAME COMPUTER, NOR IS IT PERMISSIBLE TO ALLOCATE A PART OF THE IMPUGNED PAYMENT, AS ATTRIBUTABLE TO USE OF, OR RIGHT TO USE OF, MAINFRAME COMPUTER. ACCORDINGLY, THE PROVISIONS OF ARTICLE 12(3)(B) CANNOT HAVE ANY APPLICATION IN THE MATTER. 18 . INS OFAR AS THE RELIANCE PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE DECISION S OF THE MADRAS HIGH COURT AND ALSO THE SCOPE OF ROYALTY AS GIVEN IN EXPLANATION 4 AND 5 TO SECTION 9(1)(VI) BROUGHT IN STATUTE BY THE FINANCE ACT, 2012 ARE CONCERNED, WE FIND THAT THE SAME IS NOT TENABLE FOR THE REASON THAT ONCE THE ASSESSEE HAS OPTED FOR THE BENEFIT OF THE DTAA , THEN THERE IS NO REQUIREMENT FOR RESORTING TO THE DEFINITION AND THE SCOPE OF ROYALTY AS GIVEN IN SECTION 9(1)(VI). THE SAID AMENDMENT CANNO T BE READ INTO THE TREATY AND WILL NOT INFLUENCE THE DEFINITION OF ROYALTY , AS GIVEN IN ARTICLE 12(3). THIS PROPOSITION IS SQUARELY COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN SIEMENS AKTIONGESELLSCHAFT (SUPRA), THE DECISION OF DELHI HIGH COURT I N NOKIA NETWORK (SUPRA) AND DIT V/S ERICSON AB , [2012] 343 M/S. ANTWERP DIAMO ND BANK NV 20 ITR 470. EVEN THE DECISION S OF MADRAS HIGH COURT AS RELIED UPON BY THE LEAR NED DEPARTMENTAL REPRESENTATIVE IS NOT APPLICABLE WHICH IS EVIDENT FROM THE ISSUE INVOLVED AS IS EVIDENT FROM THE SUBSTANT IAL QUESTION OF LAW WHICH WERE FORMULATED BY THE HIGH COURT FOR ADJUDICATION. HENCE, THE SAID DECISION S ARE NOT APPLICABLE. 19 . THUS, IN VIEW OF THE AFORESAID REASONS, WE HOLD THAT THE IMPUGNED PAYMENT MADE BY THE BRANCH TO THE H.O. TOWARDS REIMBURSEMENT OF COST OF DATA PROCESSING CANNOT BE HELD TO BE COVERED WITHIN THE SCOPE OF EXPRESSION ROYALTY UNDER ARTICLE 12(3)(A) OF THE INDIA BELGIUM DTAA. ACCORDINGLY, THE CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS) IS AFFIRMED. 20 . SINCE WE HAVE ALREADY HELD THAT THE DATA PROCESSING COST PAID BY THE ASSESSEE DOES NOT AMOUNT TO ROYALTY, CONSEQUENTLY, THERE IS NO REQUIREMENT FOR DEDUCTING TAX AT SOURCE ON SUCH PAYMENT. THEREFORE, THE PROVISIONS OF SECTION 40(A)(I) WILL NOT APPLY . ACCORDINGLY, THE ISSUE ARISING OUT OF GROUND NO.1 AND 2 IS DISMISSED. 21 . IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) THAT THE DATA OF PROCESSING EXPENSES CANNOT BE CLUBBED WITH THE GENERAL ADMINISTRATIVE EXPENSES. 22 . THE LEARNED COMMISSIONE R (APPEALS) HAS HELD THAT THE DATA PROCESSING EXPENSES DOES NOT FALL WITHIN THE PURVIEW OF EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES AS ENUMERATED IN CLAUSE (IV) OF EXPLANATION TO SECTION 44C. 23 . BEFORE US, THE LEARNED SENIOR COUNSEL HAS RELIED UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN GOODRICKE (SUPRA) AND THE DECISION OF M/S. ANTWERP DIAMO ND BANK NV 21 THE CO ORDINATE BENCH OF THE TRIBUNAL IN STOCK ENGINEER AND CONTRACTORS B.V. (SUPRA). WE FIND THAT I N THE SAID DECISION, THE TRIBUNAL HAD HELD THAT THE H EAD OFFICE EXPENSES ARE RESTRICTED TO EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES ONLY , AS DEFINED IN EXPLANATION (IV) TO SECTION 44C AND IT DOES NOT APPLY IN RESPECT OF EACH AND EVERY EXPENSES INCURRED BY THE H.O. THE DATA PROCESSING COST, AS HAVE BEEN DISCUSSED IN THE FORGOI NG PARAGRAPHS, PERTAINS TO ALLOCATION OF EXPENSES INCURRED BY THE H EAD OFFICE ON PRORAT A BASIS FOR THE BANKING APPLICATION SOFTWARE ACQUIRED BY THE H EAD OFFICE. SUCH EXPEN DITURE DOES NOT FALL WITHIN THE MEANING OF H EAD OFFICE E XPENSES AS PROVIDED IN SECT ION 44C. THE NATURE OF EXPENSES AS GIVEN IN SECTION 44C, HAS TO BE NECESSARILY IN THE NATURE OF EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES ONLY. THE CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS) THAT SUCH EXPENDITURE DOES NOT FALL WITHIN THE PU RVIEW OF SECTION 44C , IS IN CONSONANCE OF THE DECISION OF THE SPECIAL BENCH AND THE CO ORDINATE BENCH OF THE TRIBUNAL CITED SUPRA , WHICH WE UPHOLD . THUS, GROUND NO.3, AS RAISED BY THE REVENUE, IS DISMISSED. 24 . IN GROUND NO.4, THE REVENUE HAS CHALLENGED THAT THE DELETION OF DISALLOWANCE OF INTEREST OF ` 58,20,110. THE LEARNED COMMISSIONER (APPEALS) HAS NOT ONLY DELETED THE SAID DISALLOWANCE ON MERIT BUT HAS ALSO HELD THAT THIS AMOUNT HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE ON ACCOUNT OF FAILURE TO DEDUCT T HE TAX AT SOURCE. THEREFORE, IT WILL LEAD TO DOUBLE ADDITION. THE RELEVANT OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) IS AS UNDER: 5.2 I HAVE CONSIDERED THE ARGUMENTS OF THE AR. THE ISSUE OF ALLOWANCE OF DEDUCTION OF INTEREST PAYMENT BY INDIAN B RANCH TO OVERSEAS BRANCH HAS BEEN EXAMINED IN DETAILS BY HON'BLE ITAT, KOLKATA, SPECIAL BENCH IN THE CASE OF ABN AMRO BANK N.V. 97 ITD 89. IT HAS BEEN HELD THEREIN THAT THE BRANCH AND H.O. M/S. ANTWERP DIAMO ND BANK NV 22 CONSTITUTE THE SAME LEGAL ENTITY AND THERE CAN BE NO TRANSACTION BE TWEEN SELF OR ONE CANNOT EARN INCOME FROM ONESELF. NO INCOME ACCRUES ON ACCOUNT OF PAYMENT OF INTEREST BY H.O. TO INDIAN BRANCH OR VISE VERSA AS THERE CAN BE NO TRANSACTIONS WITH ONESELF. ACCORDINGLY, FOLLOWING THE DECISION OF HON'BLE K O LKATA ITAT, THE A.O . HAS CORRECTLY DISALLOWED THE CLAIM OF ADDITION MADE. THE ADDITION MADE BY THE A.O. IS CONFIRMED. IT IS, HOWEVER, OBSERVED THAT THE APPELLANT HAD ITSELF ALREADY DISALLOWED AMOUNT OF ` 58,20,110 FOR FAILURE TO DEDUCT TAX AT SOURCE. THE A.O. HAS DISALLOWED THE HEAD OFFICE INTEREST OF ` 3,10,93,950 THEREFORE, THE AMOUNT OF ` 58,20,110 HAS BEEN DOUBLY ADDED. THE A.O. IS DIRECTED TO DELETE THIS DOUBLE ADDITION. APPEAL IN RESPECT OF THIS GROUND IS PARTLY ALLOWED. 25 . BEFORE US, THE LEARNED SENIOR COUNSEL POINTED O UT THAT APART FROM THE FACT THAT THE ASSESSEE ITSELF HAS DISALLOWED THE SAID AMOUNT, THIS ISSUE OF ALLOWANCE OF DEDUCTION OF INTEREST PAYMENT BY INDIAN BRANCH TO OVERSEAS BRANCH IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 06, WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH IN SUMITOMO MITSUI BANKING CORPORATION V/S DDIT, ORDER DATED 30 TH MARCH 2012. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, RELIED UPON THE FINDING OF THE ASSESSING OFFICER. 26 . IN VIEW OF THE ABOVE CONTENTION OF THE LEARNED SENIOR COUNSEL AND THE CATEGORICAL FINDING OF THE LEARNED COMMISSIONER (APPEALS), WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE , AS NOT ONLY THE SAID ISSUE IS SQUARELY COV ERED BY THE DECISION OF THE SPECIAL BENCH AND THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE , BUT ALSO THERE IS NO REBUTTAL OF THE FINDING OF THE FACT RECORDED BY THE LEARNED COMMISSIONER (APPEALS) , THAT THE ASSESSEE HAD ITSELF DISALLOWED THE SAID AMO UNT ON ACCOUNT OF FAILURE TO DEDUCT THE TAX AT SOURCE AND M/S. ANTWERP DIAMO ND BANK NV 23 FURTHER DISALLOWANCE WILL LEAD TO DOUBLE DISALLOWANCE. THUS, THE GROUND NO.4 IS ALSO DISMISSED. 27 . 27 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 14 TH MARCH 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 14 TH MARCH 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 14 TH MARCH 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI