Aspect Software Inc., USA V. DCIT, CIRCLE- 1(1)(1), INTL. TAXATION, New Delhi

ITA 7698/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9939 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 22-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment; TDS; Set aside
• Section: 143(3); 5(2); 234B; 144C; 64; 13; 22

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI C BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT SHRI N.K. BILLAIYA, ACCOUNTANT MEM BER ITA NO. 7698/DEL/2017 [A.Y 2014-15] ITA NO. 8276/DEL/2018 [A.Y 2015-16] ASPECT SOFTWARE INC VS. THE DY. C.I.T RASHMI CHOPRA & ASSOCIATES CIRCLE 1(1) (1) C- 56, NIZAMUDDIN [EAST] INTERNATIONAL TA XATION NEW DELHI PAN: AAGCA 7513 D (APPLICANT) ( RESPONDENT) ASSESSEE BY : MS. RASHMI CH OPRA, SR. ADV SHRI ADITYA VOHRA, ADV SHRI ARPIT GOYAL, CA DEPARTMENT BY : SHRI SATPAL GULAT I, SR. DR DATE OF HEARING : 18.06.2020 DATE OF PRONOUNCEMENT : 25.06.2020 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AGAINST TWO SEPARATE ORDERS FRAMED U/S 143(3) R.W.S 144C OF THE INCOME-TAX ACT, 2 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] DATED 3 1.10.2017 AND 30.10.2018 PERTAINING TO ASSESSMENT YEARS 2014-15 A ND 2015-16. SINCE BOTH THESE APPEALS PERTAIN TO SAME ASSESSEE INVOLVI NG COMMON ISSUES AND WERE HEARD TOGETHER, WE ARE DISPOSING THEM OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE HAVE HEARD THE FACTS OF ASSESSMENT YEAR 2014- 15. HAVING HEARD THE RIVAL CONTENTIONS, WE HAVE CAREFULLY PERU SED THE ORDERS OF THE AUTHORITIES BELOW AND ALL THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. 3. GROUND NO. 1 IS GENERAL IN NATURE AND NEEDS NO S EPARATE ADJUDICATION. 4. GROUND NO. 2 RELATES TO REVENUE EARNED FROM SUPP LY OF SOFT WARE TAXED AS ROYALTY. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE FOLLOWING ACTIVITIES: 3 - HARDWARE SALE REVENUE - SOFTWARE LICENSING REVENUE - PROFESSIONAL SERVICES REVENUE - IMPLEMENTATION SERVICES REVENUE AND - MAINTENANCE SERVICES 6. OUT OF THE ABOVE REVENUES RECEIVED, THE ASSESSEE HAS OFFERED TO TAX ONLY RECEIPTS ON ACCOUNT OF PROFESSIONAL SERVIC ES IN THE TAX RETURN FILED BY IT TO BE TAXED @ 15% IN TERMS OF ARTICLE 1 2 OF THE DTAA BETWEEN INDIA AND USA. ALL THE RECEIPTS HAVE NOT B EEN OFFERED TO TAX BY THE ASSESSEE. 7. CONSIDERING THE PAST HISTORY OF THE ASSESSEE AND TAKING A LEAF OUT OF THE PAST ASSESSMENT ORDERS, THE ASSESSING OFFICE R TREATED THE REVENUE EARNED FROM SUPPLY OF SOFTWARE AS ROYALTY . 8. THIS ISSUE WAS THE BONE OF CONTENTION BETWEEN TH E ASSESSEE AND THE REVENUE IN THE PAST ASSESSMENT YEAR, SO MUCH SO THAT THE QUARREL TRAVELLED UPTO THE HON'BLE HIGH COURT OF DELHI WHER EIN THE REVENUE WAS IN APPEAL AGAINST THE ORDER OF THE TRIBUNAL, WH ERE THE TRIBUNAL HAS 4 HELD THAT THE REVENUE FROM SUPPLY OF SOFTWARE TO CU STOMERS IN INDIA IS NOT TAXABLE AS ROYALTY UNDER THE TREATY. 9. THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 1124/DEL/2014 & 1125/DEL/2014 & ORS DATED 18.05.2015 HAS HELD AS UN DER: 41. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E AS WELL AS THE LEARNED D.R. RELIED ON SEVERAL DECISIONS OF THE HIG H COURT AND TRIBUNAL RENDERED ON THE SUBJECT. THESE DECISIONS A RE NOT BEING CONSIDERED AS THE ISSUE IS EXTENSIVELY DEALT BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF M/S ERICS SON 42 A.B. AND INFRASOFT LTD (SUPRA) WHICH ARE BINDING ON THIS TRI BUNAL. WE OBSERVE THAT ALL THE ARGUMENTS PUT FORTH BY THE REV ENUE AND THE ASSESSEE ARE CONSIDERED AND ANSWERED IN THESE DECIS IONS. FURTHER, THE DELHI HIGH COURT IN INFRASOFT HAS EXPRESSED ITS DISAGREEMENT WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD. HENCE, THE DECISIONS RE LIED BY THE LEARNED CIT-DR IN THE CASE OF SAMSUNG ELECTRONICS A ND GRACEMAC CORPORATION (SUPRA) DOES NOT HELP THE CASE OF THE R EVENUE, AS WE ARE UNDER THE JURISDICTION OF THE HONBLE DELHI HIG H COURT. 42. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECIS ION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON A .B. (SUPRA) AND INFRASOFT LTD. (SUPRA), WE HOLD THAT THE CONSIDERAT ION RECEIVED BY THE ASSESSEE FOR SUPPLY OF PRODUCT ALONG WITH LICEN SE OF SOFTWARE TO END USER IS NOT ROYALTY UNDER ARTICLE 12 OF THE TAX TREATY. EVEN WHERE THE SOFTWARE IS SEPARATELY LICENSED WITHOUT S UPPLY OF 5 HARDWARE TO THE END USERS (I.E. EIGHT OUT OF 63 CUS TOMERS), WE ARE OF THE VIEW THAT THE TERMS OF LICENSE AGREEMENT IS SIMILAR TO THE FACTS OF INFRASOFT LTD (SUPRA). ACCORDINGLY, WE HOL D THAT THERE WAS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGH T BY THE ASSESSEE AND IT WAS A CASE OF MERE TRANSFER OF A CO PYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE A ND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE. HENCE, THE PAYMEN T FOR THE SAME IS NOT IN THE NATURE OF ROYALTY UNDER ARTICLE 12 OF THE TAX TREATY. THE RECEIPTS WOULD CONSTITUTE BUSINESS RECEIPTS IN THE HANDS OF THE ASSESSEE AND IS TO BE ASSESSED AS BUSINESS INCOME S UBJECT TO ASSESSEE HAVING BUSINESS CONNECTION/ PE IN INDIA AS PER ADJUDICATION ON GROUND NO 5 . 10. AS MENTIONED ELSEWHERE, THE QUARREL TRAVELLED U PTO THE HON'BLE HIGH COURT AND THE HON'BLE HIGH COURT OF DELHI IN I TA NO. 909/2015 AND ORS WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUEST ION OF LAW: (I ) DID THE ITAT FALL INTO ERROR IN HOLDING THAT THE TRANSACTION IN QUESTION, I.E., SUPPLY OF CUSTOMIZED SOFTWARE WAS NOT ROYALTY UNDER ARTICLE 12 (4) OF T HE INDO-US DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) READ WITH SECTION 9 (1) (VII) OF THE INCOME TAX ACT, 1961, IN THE CIRCUMSTANCES OF THE CASE. 6 (II) DID THE ITAT FALL INTO ERROR IN ITS INTERPRETA TION OF SECTION 234 (B) OF THE INCOME TAX ACT, 1961, IN THE CIRCUMSTANCES OF THE CASE. 11. T HE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: 6. THAT BATCH OF APPEALS HAS BEEN DECIDED BY THE C OURT BY ITS DECISION IN THE COMMISSIONER OF INCOME TAX INTERNAT IONAL TRANSACTION -2 V. ZTE ITA NOS. 909/2015, 28/2016, 8 61/2016, 944/2016, 4/2017, 6/2017 PAGE 5 OF 7 CORPORATION 23 7 (2017) DLT 572 (DB). THE QUESTIONS THAT AROSE IN THE AFOREMENT IONED BATCH OF APPEALS ALSO INVOLVED THE QUESTIONS THAT ARISE IN T HE PRESENT BATCH OF APPEALS. THE QUESTIONS WERE ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. 7. THE FIRST ISSUE IS WHET HER THE PAYMENT FOR SUPPLY OF CUSTOMIZED SOFTWARE WOULD BE TREATED AS ROYALTY UNDER ARTICLE 12(3) OF THE INDO-US DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) READ WITH SECTION 9(1)(VI) OF ACT. IN ZTE CORPORATION (SUPRA), THE ASSESSEE BEING A RESIDENT OF REPUBLIC OF CHINA THE TRANSACTIONS WERE GOVERNED BY THE INDO-CH INA DTAA CONTAINING IDENTICAL CLAUSES AS THE INDO-US DTAA. R ELYING ON THE DECISION OF THIS COURT IN DIRECTOR OF INCOME TAX V. ERICSSON AB (2012) 343 ITR 470, THIS COURT IN ZTE CORPORATION ( SUPRA) HELD IN PARA 22 AS UNDER: 22. IN THE PRESENT CASE, THE FAC TS ARE CLOSELY SIMILAR TO ERICSON. THE SUPPLIES MADE (OF THE SOFTW ARE) ENABLED THE USE OF THE HARDWARE SOLD. IT WAS NOT DISPUTED THAT WITHOUT THE SOFTWARE, HARDWARE USE WAS NOT POSSIBLE. THE MERE F ACT THAT SEPARATE INVOICING WAS DONE FOR PURCHASE AND OTHER TRANSACTIONS 7 DID NOT IMPLY THAT IT WAS ROYALTY PAYMENT. IN SUCH CASES, THE NOMENCLATURE (OF LICENSE OR SOME OTHER FEE) IS INDE TERMINATE OF THE TRUE NATURE. NOR IS THE CIRCUMSTANCE THAT UPDAT ES OF THE SOFTWARE ARE ROUTINELY GIVEN TO THE ASSESSEE S CUSTOMERS. THESE FACTS DO NOT DETRACT FROM THE NATURE OF THE TRANSAC TION, WHICH WAS SUPPLY OF SOFTWARE, IN THE NATURE OF ARTICLES OR GO ODS. THIS COURT IS ALSO NOT PERSUADED WITH THE SUBMISSION THAT THE PAY MENTS, IF NOT ROYALTY, AMOUNTED TO PAYMENTS FOR THE USE OF MACHIN ERY OR EQUIPMENT. SUCH A SUBMISSION WAS NEVER ADVANCED BEF ORE ANY OF THE LOWER TAX AUTHORITIES; MOREOVER, EVEN IN ERICSO N (SUPRA), A SIMILAR PROVISION EXISTED IN THE DTAA BETWEEN INDIA AND SWEDEN. 8. THE ITAT HAS, IN ITS IMPUGNED ORDER DATED 18TH M AY 2015, ALSO RELIED UPON THE DECISION IN ERICSON (SUPRA) AND DIR ECTOR OF INCOME TAX V. ITA NOS. 909/2015, 28/2016, 861/2016, 944/20 16, 4/2017, 6/2017 PAGE 6 OF 7 INFRASOFT LIMITED (2014) 220 TAX MAN 273 (DEL) AND HELD AS UNDER: 41. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED D.R. RELIED ON SEVE RAL DECISIONS OF THE HIGH COURT AND TRIBUNAL RENDERED ON THE SUBJECT . THESE DECISIONS ARE NOT BEING CONSIDERED AS THE ISSUE IS EXTENSIVELY DEALT BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS ES OF M/S ERICSSON A.B. AND INFRASOFT LTD. (SUPRA) WHICH ARE BINDING ON THIS TRIBUNAL. WE OBSERVE THAT ALL THE ARGUMENTS PUT FOR TH BY THE REVENUE' AND THE ASSESSEE ARE CONSIDERED AND ANSWER ED IN THESE DECISIONS. FURTHER, THE DELHI HIGH COURT IN INFRASO FT HAS EXPRESSED IT~ DISAGREEMENT WITH THE VIEW TAKEN' BY THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LT D. HENCE, THE DECISIONS RELIED BY THE LEARNED CITDR IN THE CASE O F SAMSUNG ELECTRONICS AND GRACEMAC CORPORATION (SUPRA) DOES N OT HELP THE 8 CASE OF THE REVENUE, AS WE ARE UNDER THE JURISDICTI ON OF THE HON'BLE DELHI HIGH COURT. 42. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE OF ERICSSON A.B. (SUPRA) AND INFRASOFT LTD. (S UPRA), WE HOLD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR SUPPLY OF PRODUCT ALONG WITH LICENSE OF SOFTWARE TO END USER IS NOT ROYALTY UNDER ARTICLE 12 OF THE TAX TREATY. EVEN WHERE THE SOFTWARE IS SEPARATELY LICENSED WITHOUT SUPPLY OF HARDWARE TO T HE END USERS (I.E. EIGHT OUT OF 63 CUSTOMERS), WE ARE OF THE VIE W THAT THE TERMS. OF LICENSE AGREEMENT IS SIMILAR TO THE FACTS OF INF RASOFT LTD' (SUPRA). ACCORDINGLY, WE- HOLD' THAT THERE WAS NO T RANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND I T WAS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRESENTS THE PURCHASE PRI CE OF AN ARTICLE. HENCE, THE PAYMENT FOR THE SAME IS NOT IN THE NATUR E OF ROYALTY UNDER ARTICLE 12 OF THE TAX TREATY. THE RECEIPTS WO ULD CONSTITUTE BUSINESS RECEIPTS IN THE HANDS OF THE ASSESSEE AND IS TO BE ASSESSED AS BUSINESS INCOME SUBJECT TO ASSESSEE HAV ING BUSINESS CONNECTION/PE IN INDIA AS PER ADJUDICATION ON GROUN D NO.5. 9. WITH THE ITAT HAVING FOLLOWED THE DECISIONS OF THIS COUR T AND THIS COURT HAVING REITERATED THE LEGAL POSITION IN COMMI SSIONER OF INCOME TAX, INTERNATIONAL TAXATION -2 V. ZTE CORPOR ATION (SUPRA), THE COURT ANSWERS ITA NOS. 909/2015, 28/2016, 861/2 016, 944/2016, 4/2017, 6/2017 PAGE 7 OF 7 QUESTION (I) I N THE NEGATIVE AND HOLDS THAT THE IMPUGNED ORDER OF THE ITAT SUFFE RS FROM NO LEGAL INFIRMITY. QUESTION (I) IS, THEREFORE, ANSWER ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. TURNING TO QU ESTION (II) REGARDING THE INTERPRETATION OF SECTION 234B OF THE ACT, THE COURT 9 FINDS THAT IN COMMISSIONER OF INCOME TAX, INTERNATI ONAL TAXATION - 2 V. ZTE CORPORATION (SUPRA), THE QUESTION HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE FOLL OWING THE DECISION IN DIRECTOR OF INCOME TAX V. GE PACKAGED P OWER INC. 373 ITR 65. CONSEQUENTLY, THIS ISSUE IS ALSO ANSWERED A GAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE 12. ON FINDING PARTY THAT THERE IS NO CHANGE IN THE FACTUAL MATRIX IN ASSESSMENT YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEARS, WHICH HAS ALSO BEEN ACCEPTED BY THE LOWER AUTHORITI ES, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH, BE ING UPHELD BY THE HON'BLE HIGH COURT OF DELHI, WE ARE OF THE CONSIDER ED VIEW THAT RECEIPTS WOULD CONSTITUTE BUSINESS RECEIPTS AND IS TO BE ASSESSED AS SUCH, SUBJECT TO THE ASSESSEE HAVING BUSINESS CONNE CTION/PE IN INDIA. GROUND NO. 2 IS, ACCORDINGLY, ALLOWED. 13. NEXT GRIEVANCE RELATES TO THE ALLEGATION THAT T HE ASSESSEE IS HAVING INSTALLATION AND DEPENDENT AGENT/PE IN INDIA . 14. THIS ISSUE IS ALSO NO MORE RES INTEGRA, AS THE SAME HAS BEEN CONSIDERED AND DECIDED BY THE CO-ORDINATE BENCH IN A BUNCH OF APPEALS RELATING TO ASSESSMENT YEARS 2003-04 TO 2010-11 IN ITA NO. 10 1124/DEL/2014 AND ORS. RELEVANT FINDINGS OF THE CO -ORDINATE BENCH READ AS UNDER: 91. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND T HE MATERIAL ON RECORD. THE EXISTENCE OF PE IN INDIA IS THE MATTER OF DISPUTE IN THIS GROUND. REVENUE HAS CONTENDED THAT THE ASSESSE E HAS FIXED PE, INSTALLATION PE AND DEPENDENT AGENT PE IN INDIA . OUR FINDING IN RESPECT OF EACH OF THE FORMS OF PE IS AS UNDER: FIX ED PE: AS PER ARTICLE 5(1) OF THE INDIA USA DTAA, THE TERM PERM ANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THRO UGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRI ED ON. ARTICLE 5(2) DEALS WITH VARIOUS INSTANCES RESULTING IN PE. ARTIC LE 5(3) DEALS WITH CASES OR FACTS WHICH DO NOT RESULT IN PE. ONE OF TH E EXCEPTIONS UNDER ARTICLE 5(3) IS MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPP LY OF INFORMATION, FOR SCIENTIFIC RESEARCH OR FOR OTHER ACTIVITIES WHI CH HAVE A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPR ISE. THE ASSESSEE HAS CONTENDED THAT ITS ACTIVITIES IN INDIA ARE OF PREPARATORY OR AUXILIARY CHARACTER AND, HENCE, THER E IS NO PE IN INDIA. THE REVENUE, ON THE OTHER HAND, HAS CONTENDE D THAT THE BUSINESS OF THE ASSESSEE IS ALREADY SET UP IN INDIA AND, HENCE, THERE CANNOT BE ANY PREPARATORY AND THE SALE ACTI VITY UNDERTAKEN IS THE MAIN BUSINESS ACTIVITY AND CANNOT BE REGARDE D AS AUXILIARY NATURE. AS REGARDS THE FIXED PLACE OF BUSINESS IN I NDIA, IT IS CONTENDED BY THE ASSESSEE THAT THE BUSINESS PLACE O F ASPECT INDIA IS NOT UNDER THE CONTROL OR AT THE DISPOSAL OF THE ASSESSEE AND, HENCE, THERE IS NO FIXED PE. THE REVENUE, ON THE OT HER HAND, HAS 11 CONTENDED THAT SINCE THE EMPLOYEES OF THE ASSESSEE WERE IN INDIA, THE ASSESSEE HAS CARRIED ON BUSINESS IN INDIA. AFTE R CONSIDERING THE MATERIAL ON RECORDS, WE ARE OF THE VIEW THAT NE ITHER THE ASSESSEE NOR THE REVENUE HAS BEEN ABLE TO CONCLUSIV ELY DEMONSTRATE THE ABSENCE OR PRESENCE OF THE ASSESSEE S FIXED PLACE OF BUSINESS IN INDIA UNDER ARTICLE 5 OF THE INDIA 64 USA TREATY. THE REVENUE HAS, FURTHER, CONTENDED THAT THE ASSESS EE HAS NOT SUBMITTED THE INFORMATION ON VISIT REPORTS SUBMITTE D BY THE EMPLOYEES AND INFORMATION ON E- MAILS OF THESE VISI TING EMPLOYEES. WE, THEREFORE, SET ASIDE THE MATTER AND REMITTED TO THE ASSESSING OFFICER FOR PROPER VERIFICATION REGARDING EXISTING OF PE IN INDIA. THE ASSESSEE ALSO SHALL SUBMIT THE DETAILS AS CALLE D FOR BY THE ASSESSING OFFICER. INSTALLATION PE: THE REVENUE CON TENDS THAT SINCE INSTALLATION AND SUPPORT SERVICES ARE PROVIDED BY A SPECT INDIA, THERE EXISTS AN INSTALLATION PE OF THE ASSESSEE IN INDIA. AS PER ARTICLE 5(2) OF INDIA USA TREATY, THE TERM PERMA NENT ESTABLISHMENT INCLUDES ESPECIALLY THE FOLLOWING: ( I) CLAUSE (J): AN INSTALLATION OR STRUCTURE USED FOR THE EXPLORATION OR EXPLOITATION OF NATURAL RESOURCES, BUT, ONLY IF SO USED FOR A PERIO D OF MORE THAN 120 DAYS IN ANY TWELVE-MONTH PERIOD; (II) CLAUSE (K ): A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT O R SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE , PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJECT S OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE THAN 120 DAYS IN ANY TWELVE- MONTH PERIOD. THERE IS NO DISPUTE THAT CLAUSE (J) A BOVE IS NOT APPLICABLE. THE DISPUTE IS WITH REGARD TO EXISTENCE OF PE UNDER CLAUSE (K) ABOVE. AS PER ARTICLE 5(2)(K), A BUILDIN G SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR S UPERVISORY 12 ACTIVITIES IN CONNECTION THEREWITH IS REGARDED AS P E IS SUCH PROJECT OR ACTIVITIES (TOGETHER WITH OTHER SUCH SITES, PROJ ECTS OR ACTIVITIES, IF ANY) CONTINUE FOR A PERIOD OF MORE THAN 120 DAYS IN ANY TWELVE- MONTH PERIOD. ARTICLE 5(2)(K) SHOULD BE READ AS A W HOLE. THE TERM IN CONNECTION THEREWITH WOULD APPLY FOR THE ENTIR E PRECEDING WORDS VIZ., A BUILDING SITE OR CONSTRUCTION, INSTA LLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES. THE TERM INSTAL LATION PROJECT CANNOT BE READ DE-HORS THE WORDS ACCOMPANYING IT. T HUS, WHEN THE ENTIRE CLAUSE IS 65 RED AS A WHOLE, IT WOULD BE EVI DENT THAT THE INSTALLATION OR ASSEMBLY PROJECT OR SUPERVISORY ACT IVITIES SHOULD BE IN CONNECTION WITH THE BUILDING SITE OR CONSTRUCTIO N. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE DOES NO T CARRY ON BUSINESS IN INDIA THROUGH A BUILDING SITE OR CONSTR UCTION. CONSEQUENTLY, WE ARE OF THE VIEW THAT THERE IS NO I NSTALLATION PE OF THE ASSESSEE IN INDIA. DEPENDENT AGENT PE: ARTICLE 5(4) OF INDIA USA TREATY DEALS WITH THE DEPENDENT AGENT PE. IT RE ADS AS UNDER: NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2 WHERE A PERSON-OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES IS ACTING IN A CONTRACTING STA TE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST- MENTIONED STATE, IF: (A) HE HAS AND HABITUALLY EXER CISES IN THE FIRST-MENTIONED STATE AN AUTHORITY TO CONCLUDE ON B EHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO TH OSE MENTIONED IN PARAGRAPH 3 WHICH, IF EXERCISED THROUGH A FIXED PLA CE OF BUSINESS, WOULD NOT MAKE THAT FIXED PLACE OF BUSINESS A PERMA NENT ESTABLISHMENT UNDER THE PROVISIONS OF THAT PARAGRAP H; (B) HE HAS NO SUCH AUTHORITY BUT HABITUALLY MAINTAINS IN THE F IRST MENTIONED 13 STATE A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTE RPRISE, AND SOME ADDITIONAL ACTIVITIES CONDUCTED IN THE STATE O N BEHALF OF THE ENTERPRISE HAVE CONTRIBUTED TO THE SALE OF THE GOOD S OR MERCHANDISE; OR (C) HE HABITUALLY SECURES ORDERS IN THE FIRST- MENTIONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE EN TERPRISE 66 THE FIRST AND FOREMOST REQUIREMENT UNDER ARTICLE 5(4) I S THAT THE SAID ARTICLE WILL APPLY TO A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 5 APPLIES. PARAGRAPH 5 OF ARTICLE STATES AS UNDER: 5. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN OTHER C ONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A BROKER, GENERAL COMMISSION AGENT OR ANY O THER AGENT OF AN INDEPENDENT STATUS, PROVIDED THAT SUCH PERSONS A RE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. HOWEVER, WHEN TH E ACTIVITIES OF SUCH AN AGENT ARE DEVOTED WHOLLY OR ALMOST WHOLLY O N BEHALF OF THAT ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGENT A ND THE ENTERPRISE ARE NOT MADE UNDER ARMS LENGTH CONDITIO NS, HE SHALL NOT BE CONSIDERED AN AGENT OF INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH. PARAGRAPH 5 LAYS DOWN CONDITION S AS TO WHEN CAN AN AGENT; BROKER IS REGARDED AS DEPENDENT AGENT OR INDEPENDENT AGENT. IF THE AGENT IS DEVOTED WHOLLY OR ALMOST WHO LLY ON BEHALF OF THE ENTERPRISE AND THE TRANSACTIONS BETWEEN THE AGE NT AND THE ENTERPRISE ARE NOT MADE UNDER ARMS LENGTH CONDITIO NS, THE AGENT IS NOT CONSIDERED AS AGENT OF INDEPENDENT STATUS. IN SUCH CIRCUMSTANCES, THE AGENT WOULD BE REGARDED AS DEPE NDENT AGENT. FURTHER, THE DEPENDENT AGENT HAS TO SATISFY ANY OF THE TESTS LAID DOWN IN (A), (B) OR (C) ABOVE IN ORDER TO CONSTITUT E A DEPENDENT 14 AGENT PE OF THE NON-RESIDENT. COMING TO THE FACTS O F THE PRESENT CASE, THE ASSESSEE HAS ARGUED THAT ASPECT INDIA NEI THER SECURES ORDERS NOR HABITUALLY EXERCISES AN AUTHORITY TO CON CLUDE ON BEHALF OF THE ASSESSEE. IT IS, THEREFORE, CONTENDED THAT T HERE IS NO DEPENDENT AGENT PE IN INDIA. THE REVENUE, ON THE OT HER HAND, HAS ARGUED THAT THE ASSESSEE HAS NOT SUBMITTED PROPER F ACTS TO SUBSTANTIATE ITS CONTENTION. IT IS SUBMITTED THAT T HE ASSESSEE HAS NOT SUBMITTED INFORMATION ON SALE OF EQUIPMENT AND LICENSING OF SOFTWARE THAT ARE DONE DIRECTLY BY ASPECT INDIA TO CUSTOMERS AND THOSE DONE 67 THROUGH CHANNEL PARTNERS. IT IS CONTE NDED THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT IT IDENTIFIES CU STOMERS AND MAKE SALES. THE STATEMENT RECORDED FROM THE DIRECTO R, SALES OF ASPECT INDIA IS STATED TO BE CONTRARY TO THE CLAIM OF THE ASSESSEE THAT ASPECT INDIA ONLY ACTS AS A COMMUNICATION CHAN NEL BETWEEN THE ASSESSEE AND THE CUSTOMERS. SIMILARLY, THE ASSE SSEES CLAIM THAT MAJORITY OF SALES ARE MADE TO CHANNEL PARTNERS IS STATED TO BE FACTUALLY INCORRECT SINCE INFORMATION ON ALL THE CH ANNEL PARTNERS, DATE OF AGREEMENT AND SALES MADE THROUGH THEM IS NO T SUBMITTED. IT IS ARGUED THAT COPY OF I APPROVE SYSTEM HAS NO T BEEN SUBMITTED BY THE ASSESSEE FOR FACTUAL VERIFICATION. CONSIDERING THESE FACTS, WE ARE OF THE VIEW THAT BOTH THE REVEN UE AND THE ASSESSEE HAVE NOT BEEN ABLE TO DEMONSTRATE THE EXIS TENCE OR OTHERWISE OF THE DEPENDENT AGENT PE. IN THE ABSEN CE OF PROPER INFORMATION IN THIS REGARD, WE ARE UNABLE TO DECIDE WHETHER THE ASSESSEE HAS A DEPENDENT AGENT PE IN INDIA. WE AC CORDINGLY, SET ASIDE THE ISSUE OF DEPENDENT AGENT PE AND RESTORE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 15 15. AS MENTIONED ELSEWHERE, THE ABOVE MENTIONED BUN CH OF APPEALS WAS SUBJECT MATTER BEFORE THE HON'BLE HIGH COURT, B UT THIS FINDING OF THE TRIBUNAL WAS NOT QUESTIONED BEFORE THE HON'BLE HIGH COURT OF DELHI AND THEREFORE, IN OUR CONSIDERED VIEW, THE SAME HAS ATTAINED FINALITY. 16. REFERRING TO THE FINDINGS OF THE CO-ORDINATE BE NCH BY WHICH THE TRIBUNAL HAS SET ASIDE THE ISSUE OF DEPENDENT AGENT /PE, THE LD. DR VEHEMENTLY STATED THAT THE OTHER INTER-RELATED ISSU ES RELATING TO ATTRIBUTION OF INCOME AND CLAIM OF REMUNERATION TO BE AT ARMS LENGTH NEED TO BE RE-EXAMINED BY THE ASSESSING OFFICER AFT ER EXAMINING THE ISSUE RELATING TO DEPENDENT AGENT/PE. 17. WE FIND FORCE IN THIS CONTENTION OF THE LD. DR. THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE RELATING TO DEPENDENT AGENT/PE IN LINE WITH THE DIRECTION OF THE CO-ORDINATE BENCH [SUPRA] AND THEREAFTER SHOULD DECIDE ATTRIBUTION OF INCOME AND THE ISSUE RELATING TO TRANSACTIONS BEING AT ARMS LENGTH PRICE. THUS, GROUND NOS 3 TO 6 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16 18. IN RESPECT OF THE ISSUE RELATED TO GRANT OF TDS CREDIT, THE ASSESSING OFFICER IS DIRECTED TO GIVE CREDIT OF TDS AS PER PROVISIONS OF LAW. THE OTHER ISSUE RELATING TO INITIATION OF PEN ALTY PROCEEDINGS IS PREMATURE AND IS DISMISSED ACCORDINGLY. 19. AS MENTIONED ELSEWHERE, THE GROUNDS OF APPEAL I N ASSESSMENT YEAR 2015-16 ARE IDENTICAL TO GROUNDS IN ASSESSMENT YEAR 2014-15 THOUGH THE QUANTUM MAY DIFFER. FOR OUR DETAILED DI SCUSSION GIVEN HEREINABOVE, THE APPEAL IS ACCORDING DISPOSED OFF. 20. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E IN ITA NO. 7698/DEL/2017 AND ITA NO. 8276/DEL/2018 ARE ALLOWED IN PART FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 25.06. 2020. SD/- SD/- [SUSHMA CHOWLA ] [N.K. BILLAIYA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 25 TH JUNE, 2020. 17 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER